Insurance companies hold all the power so a review of insurance laws is overdue
Friday, 6 April 2018
OPINION: An insurance contract is a bit like a lifebuoy. Once purchased, you tuck it away until you really need it.
Hopefully this is never – and if that's the case you may never know if it was up to the job or not. However when you find yourself reaching for one there is a sense of anxiety that it may not do everything you had hoped.
The recently announced review of insurance contract law is good news for consumers. The law is well overdue for an overhaul – its principles were set when rich gentry insured merchants over cups of (newly discovered) coffee at the Lloyds coffee house. Most insurance was for cargos and the owners knew more about what it was and where it was going than the insurer.
These days the insurer has powerful predictive tools at its disposal to profile risk – from the chances of a driver having a car accident to death rates over any given population. Even natural disasters are predicted relatively accurately on a global scale.
**READ MORE:
* Limitations defence to affect hundreds caught in earthquake insurance disputes
* Buried trouble: Christchurch's next insurance battle
* Top 10 reasons New Zealanders' insurance claims are declined
* All earthquake-prone houses could face insurance hike**
What's more, insurers are now large multinational financial institutions and ordinary householders almost universally hold insurance. Such insurance contracts aren't written or negotiated – they are delivered as a fait accompli to the home owner. This is a massive imbalance of knowledge and negotiating power.
The strangest rule of all is the one which says that you – the owner – must tell the insurer what it would like to know when it decides whether to insure you. This is nuts because most owners have no idea what is important to an insurer or what it knows already (for example that the wood-burner in your home has no permit or the new car has a modified exhaust).
It gets worse – if you don't tell the insurer what it wants to know they don't have to pay you anything for any claim, at all, ever. This rule has been done away with in almost every other developed country and will no doubt be the first against the wall in this review.
Of course earthquakes in recent years have thrown up several other issues – such as there being no clear rule about the length of time that insurers are able to take to settle a claim.
Some certainly around this is important. Insured individuals should be compensated for unreasonable delays in settling a claim – after all, insurance is about protection and peace of mind. A further area of uncertainty is the fact that no-one is exactly sure how long it is until insurers can use the statute of limitations to defend any court action. Again, this needs clarification.
While lawyers are all aflutter about the review it hasn't caused much stir elsewhere – but it should.
Having a fair and comprehensive safety net in the case of a catastrophe is what insurance is all about. At the moment our insurance law leans far too heavily in favour of insurers. While the life ring may be there, it seems that the insurer chooses when and how to throw it to the person in distress.
When misfortune strikes people who thought they had a safety net can face financial and emotional disaster with the repercussions lasting a lifetime.
The current review should be a first step in modernising our insurance law and evening out the playing field so that insurers can no longer rely on arcane rules, must act promptly, and are obliged to deal with consumers transparently and in good faith.
There is a group of people who know only too well that this does not always happen – they can be found in a fault line starting in Christchurch and running north through Kaikoura, Blenheim and Wellington.
Duncan Webb is a former insurance lawyer and professor of law at the University of Canterbury. He is the MP for Christchurch Central.