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Friday, 20 February 2015

Comments on the ICNZ Revised Fair Insurance Code - Part 2

The whole viability of the insurance industry depends upon utmost good faith which, according to ICNZ on their website here, means:

An insurance policy is a contract of ‘utmost good faith’ between the insurer and the customer.

The insurer is required to observe and honour the contract conditions. The customer is required to disclose to the insurer all material facts that could affect the risk. For example, a person who travels overseas and leaves their house empty needs to tell their insurer, as an empty house is more risky to insure than an occupied one.

Failure to tell your insurance company everything they need to know to assess your risk accurately may jeopardise your insurance cover. If in doubt about what you need to declare, ask your insurance company.

A rule of thumb is that you should declare any information that would make the insurer alter the terms and conditions of your contract.

As is easily seen, the weight of the so-called “utmost good faith” obligation falls entirely on the customer who has to be sufficiently familiar with insurance practices to be able to anticipate what an insurer needs to know.

The obligation of the insurer is not one of “utmost good faith” at all, it is merely an empty statement that they will observe and honour contract conditions - a standard practice and legal requirement with all forms of contracts in all types of business. There is no requirement for insurers to fully disclose to the customer all the insurer needs to be able to agree and continue a policy. Nor must they disclose what the key terms of a policy mean, and how they will be interpreted should a claim be made. The insurer is offering nothing in return for the customers utmost good faith.

All this might be acceptable if contract conditions were fair and reasonable. Customers won’t know if this is the case unless the wording is clear and fully explained in plain English (and the equivalent in other languages). However, contract conditions are written to suit the purposes of the insurer, using words and expressions that are usefully (wilfully?) vague and can mean different things to different parties. Post-earthquake, many customers found words no longer meant what they thought and expressions (e.g. like-for-like) could be interpreted in ways that defied common sense. 

So, if you, the customer, fail to disclose or understand something, that action is likely to be held against you and jeopardise your claim. What if you didn't know something was important, might cause the insurer to alter the terms and conditions of the contract, misunderstood or just didn't know? You are at the mercy of the insurer who, in signing up to the Revised Code, now agrees to being “reasonable” when dealing with you. As there has been an absence of reasonableness with many claims to date this is not a cause for optimism.

Utmost good faith, which underpins insurance, appears to be a one way street – customers are obliged to act in this way, insurers are not. This in itself is evidence the Revised Code has fallen well short of what would be a reasonable minimum – that both parties be required to be equally responsible to act in utmost good faith.

The next post on Monday will pursue the shortcomings of the Revised Code as a whole.

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