FANZ Urges Government to Classify All Life Insurance Policies as Consumer Contracts

Highlights:

• Simplified Insurance Process for Small Businesses: Finance Advice New Zealand (FANZ) advocates for the government to classify all life, health, and disability insurance policies as consumer contracts to streamline the insurance process for small business owners.
• Current Bill's Complexity: FANZ warns that the Contracts of Insurance Bill’s separate definitions for consumer and non-consumer contracts could create differing disclosure obligations, leading to increased complexity and potential confusion for consumers.
• Boosting Consumer Trust and Participation: FANZ believes that proposed amendments regarding disclosure duties, utmost good faith, and unfair contract terms will increase consumer trust and understanding of insurance, potentially leading to higher participation rates among New Zealanders.

Finance Advice New Zealand (FANZ) is advocating for the government to categorize all life, health, and disability insurance policies as consumer contracts to streamline and simplify the insurance process for small business owners.

Addressing the Contracts of Insurance Bill

During a parliamentary Finance and Expenditure Committee session, FANZ Chief Executive Nick Hakes highlighted the potential complications arising from the current Contracts of Insurance Bill. With around 450,000 small businesses in New Zealand needing insurance for both personal and business purposes, Hakes warned that the bill’s separate definitions for consumer and non-consumer contracts could lead to differing disclosure obligations.

Simplifying Disclosure Obligations

Hakes explained that a small business owner seeking life insurance for both family and business protection would currently complete a single personal statement covering health, family history, and pastimes, with uniform disclosure obligations. Under the proposed bill, however, this process could become more complex, requiring consumers to understand and comply with different disclosure duties depending on the policy’s purpose.

Impact on Small Business Owners

The FANZ submission to the committee emphasized that only 51.3% of New Zealanders have life insurance, a figure well below the OECD average of 68.7%. Moreover, only 11% of respondents in a 2022 Financial Services Council survey had income protection insurance, despite 80% indicating they would face financial difficulties if unable to work due to illness or accident.

Promoting Consumer Trust and Participation

FANZ believes that the proposed amendments regarding disclosure duties, utmost good faith, and unfair contract terms will foster increased consumer trust and understanding of insurance, potentially boosting participation rates. However, as the bill stands, it may introduce unnecessary complexity and confusion for policyholders. Hakes cited the example of a tradesman, Jack, who uses insurance to protect both his family and business, explaining that Jack’s current disclosure obligations do not vary based on the insurance purpose. The proposed bill, however, could change this, complicating the process and potentially deterring consumers from adequately protecting themselves against risks.

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