New laws give Kiwi insurers 3 years to adopt plain language in their policies

New laws passed in Parliament set nationwide rules for insurers to use plain language in their contracts. Image by Leroy de Thierry / Unsplash Licence.

The Contracts of Insurance Act 2024 and a related Repeals and Amendments Act passed into law in November last year.

In the words of Insurance Council of New Zealand chief executive Kris Faafoi, the Acts tidy up a ‘mishmash of outdated insurance laws’ and bring them into the 21st century.

What’s new in the new laws

The headline for insurers is that the new laws give them 3 years to make a raft of updates to their policies and processes.

Most of the changes are about making life easier for individuals with ‘consumer’ insurance — like life, home, contents, and car insurance.

Of particular relevance for the WriteMark® are requirements to:

• ensure all contracts are ‘clear, concise, and effective’
• inform policyholders more precisely about their disclosure responsibilities.

Clear wording to clarify ‘rights and obligations’

The plain language requirements take effect as amendments to the Financial Markets Conduct Act 2013. A new insertion specifies that insurers must write and present contracts in a ‘clear, concise, and effective manner’.

The legislation doesn’t elaborate on exactly what ‘clear, concise, and effective’ means, except to clarify that ‘concise’ doesn’t mean entire documents have to be short — just that ‘particular terms’ can’t be excessively wordy.

But the emphasis is clearly on making life easier for everyday Kiwis trying to navigate the complexity of insurance. Insurers will know they’ve succeeded if the wording and presentation ‘assist consumers to understand their rights and obligations’.

The use of ‘worded and presented’ suggests that not only text but design elements (like font size, line length, and colour contrast) are also factors.

These new requirements make the WriteMark® more urgently relevant for insurers than ever before. Achieving the WriteMark® on insurance policies does two things.

• It offers a clear 25-point framework for rewriting in plain language.
• It demonstrates to both consumers and regulators that a policy is ‘clear, concise, and effective’.

 

Contact us to discuss getting the WriteMark® on insurance policies

Existing disclosure rules create headaches for consumers

The biggest changes in the Contracts of Insurance Act — at least for everyday consumers — concern policyholder disclosures.

When someone buys an insurance policy, they have to share a range of details about their life and circumstances. Insurers use this information to work out the terms of the contract they’re willing to offer.

The kinds of information consumers must share has been, historically, a bit loose. This made it hard for people to know exactly what information their insurer considered relevant. And that could later allow insurers to decline claims because they didn’t have the right information when they agreed to the contract.

Long story short: it wasn’t great for consumers.

The new laws shift the onus to insurers

Under the new laws, insurers have more responsibility to gather the right information using clear questions in familiar terms. If they don’t get the right information, it’s still their responsibility to follow up before entering a contract.

This shifts much of the onus of disclosure from policyholders to insurers. As Commerce and Consumer Affairs Minister Andrew Bayly put it, ‘Consumers will no longer have to rack their brains and guess what information is relevant to their insurance policy’.

Again, plain language is vital here. Insurers need to phrase their questions using simple and unambiguous terms to get the information they need. It’s on them to get the wording right; regulators are unlikely to side with insurers if policyholders find disclosure questions confusing.

For their part, policyholders must ‘take reasonable care not to make a misrepresentation’ — a slightly hideous phrase that means they have to do their best to ensure their answers are correct.

If you’ve got a few spare hours, you can read the full text of the Acts online.

View the Contracts of Insurance Act 2024

View the Contracts of Insurance (Repeals and Amendments) Act 2024