Concern that the country’s 450,000 small business owners could be disadvantaged if Insurance Law Contracts becomes law have been raised by the CEO of Financial Advice NZ Nick Hakes.
He told members of a select committee hearing submissions on the bill that its current wording defines consumption and non-consumption policies based on their purpose.
The purpose then determines the insured’s disclosure duties. He is concerned this will increase complexity for small business owners applying for life and disability insurance and proposed that all life, disability and health insurance policies be considered consumer contracts.
By way of illustration, Hakes presented the scenario of ‘Jack’, a small business owner who needs a personal life policy to take care of his personal and family mortgage needs, but who also needs a life policy to cover the business risk of your key person.
“As commercial insurance policies are not for personal, domestic or household purposes, they would be defined as a non-consumer contract,” Hakes said.
“Our interpretation of the proposed meaning of the consumer and non-consumer contracts is that Jack would have two different disclosure obligations when applying for the life policy.
“For your personal life policies, your duty of disclosure is one of reasonable care. For corporate life policies, their duty of disclosure is that of fair representation.”
Hakes says consumers already perceive the life policy application process as complex, confusing and time-consuming.
“So this purpose distinction for life policies, which results in a life policy being consumer or non-consumer, could have the unintended consequence of increasing barriers to consumer participation,” he said.
He asked the committee to consider defining all life, health and disability policies as consumer contracts.