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Bid to stamp out 'hidden' and 'unfair' terms from insurance
A government plan to remove unfair fine print from insurance policies has sparked warnings from the industry that premiums may be pushed up to guard against the risk of future lawsuits from customers.
Responding to the Hayne royal commission, Treasurer Josh Frydenberg on Tuesday released draft legislation that will subject insurance companies to a ban on unfair contract terms, which already covers other financial services.
The move, long supported by consumer groups, is aimed at removing exemptions that can make it harder for consumers to make a claim and was a key recommendation from royal commissioner Kenneth Hayne.
"It means the insurance companies won't be able to put in hidden terms and conditions which limit the scope of the cover," said John Berrill, principal of specialist law firm Berrill & Watson.
Mr Frydenberg said the new law was designed to stamp out contract terms that created a "significant imbalance", were not needed to protect the business, or would cause "detriment" to a customer.
"Removing the exemption for insurance contracts from the [unfair credit terms] regime will ensure consumers and small businesses have the same protections regardless of which financial service or product they are purchasing," Mr Frydenberg said.
Treasurer Josh Frydenberg said subjecting insurance to unfair contract laws would protect consumers and small businesses.Credit: Alex Ellinghausen
Insurance Council of Australia chief executive Rob Whelan hit back by saying the draft laws, which require a narrow definition of what is being insured, meant "almost every term in an insurance contract" would be legally contestable.
“Our concerns, as expressed at the royal commission hearings, are that if insurers cannot rely on the legitimate terms of their contracts, they will have to price in the additional risk. This will be passed onto consumers," Mr Whelan said.
Consumer Action Law Centre senior policy adviser Cat Netwon said insurers were the only industry given a "loophole" from unfair contract laws.
"Insurers won't be able to hide behind unfair terms that are in exclusions, benefits and definitions," Ms Newton said.
In response to another royal commission recommendation, the government also said it would this week introduce legislation banning "grandfathered" commissions paid by wealth management firms to financial advisers for providing investment advice.
These are commissions that were exempted from a ban introduced by the Gillard government.
Mr Frydenberg said grandfathered commissions, which were also controversial with consumer groups for years before the Hayne royal commission, could keep clients in inferior financial products when cheaper and better options were available.
The shake-up comes after the Australian Competition and Consumer Commission (ACCC) on Tuesday recommended a new national comparison website for general insurance, in response to the high cost of getting cover in northern Australia.
ICA spokesman Campbell Fuller said residents in northern Australia already had access to a comparison website run by the Australian Securities and Investments Commission (ASIC).
"The industry sees no need for a national website, given that the key issues faced by northern Australian households and businesses are unique to those regions," Mr Fuller said.