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Unfair Terms in Insurance Contracts – Regulation Impact Statement – The Treasury

On 20 December 2012, the Assistant Treasurer announced that the Government will introduce legislative amendments to provide consumers with protection against unfair terms in insurance contracts. Currently, remedies for unfair terms in consumer contracts do not apply to insurance contracts. Estimates based on limited, mostly anecdotal, evidence suggest that in a year a small number of consumers (between 75 and 150) may be suffering a small aggregate financial detriment (between $5-10 million) due to unfair terms in insurance contracts. The Regulation Impact Statement (RIS) recommends amending the Insurance Contracts Act 1984 to provide remedies for unfair terms in insurance contracts. These remedies are based on the protections provided under the Australian Securities and Investments Commission Act 2001 for unfair terms in other forms of consumer contracts. The RIS recommends allowing both consumers and ASIC to bring action against insurers for unfair contract terms.  The amended legislation will not prescribe what constitutes the ‘main subject matter’ of insurance contracts (that is, the fundamental elements of the contract which are exempt from unfair contract term laws), but will rely on the courts’ interpretation. While the absence of data makes it difficult to estimate, the Regulation Impact Statement suggests costs are likely to be low, particularly if insurers take a reasonable and conservative assessment of their standard contract terms. The expected benefits are a more consistent approach to unfair terms in consumer contracts and reduced detriment for consumers. The RIS was prepared by the Treasury and assessed as adequate by the Office of Best Practice Regulation.