Insurance plays an important social and economic role. Insurance provides compensation for the losses that consumers and businesses can face when an unexpected, harmful event occurs. Insurance also encourages innovation and supports productivity by transferring the risk of loss from one business to another. Having insurance also means that consumers and businesses have less need to hold reserve funds for dealing with emergencies, thereby freeing up money for more productive uses.

Given the importance of insurance, it is in the public interest to ensure that insurance provides the compensation that it is intended and expected, to provide. Insurance contract law is the law that governs insurance contracts. It consists of various pieces of legislation and case law.

The Ministry of Business, Innovation and Employment (MBIE) is reviewing New Zealand’s insurance contract law with input from the Financial Markets Authority (FMA), the Treasury, the Commerce Commission and the Reserve Bank of New Zealand.

A number of previous reviews have identified issues with insurance contract law that have not yet been addressed. The review will focus on these discrete issues and a number of other ones that have subsequently been raised. The issues within the review’s scope include:

• The law is fragmented and would benefit from consolidation

• disclosure obligations for policyholders and remedies for non-disclosure are seen as onerous

• there are a range of technical issues that have been identified by the Law Commission and industry

• the International Monetary Fund’s Financial Sector Assessment Programme has identified areas where there is inadequate conduct regulation of insurers and intermediaries • the precise scope of those terms defined to be not “unfair contract terms” under the Fair Trading Act 1986 may need to be considered and whether these could be moved to insurance specific legislation

• some consumers may find it hard to find and compare prices and policies.

The review will cover all types of insurance, as many of the issues raised will be common to many forms of insurance products.

This document outlines MBIE’s initial analysis of various issues that have been raised with insurance contract law. It also proposes objectives for the review.

It is important to understand what is working well and what isn’t before considering potential solutions to any issues. Submissions on this issues paper will inform the government’s understanding of the various issues. This document therefore deliberately does not propose any solutions or legislative changes. Policy options to address any issues will be the subject of a second consultation document which we plan to release toward the end of 2018.

This issues paper poses a number of key questions, informed by initial discussions with consumers, industry groups, dispute resolution schemes, professional advisers and other government agencies. We seek your responses to these questions and other relevant feedback to improve our understanding of the insurance sector, issues with insurance contract law and opportunities for change.