Let’s get medieval on insurance company’s arses
With the fate of the proposed flood levy hanging in the balance as we await the outcome of negotiations between Senator Nick Xenophon and the Federal Government, it‘s timely to have a close look at the whole issue of disaster insurance and the insurance industry generally.
A sad reality emerging from this summer’s national disasters is that not only have we been as a nation generally under-insured for natural disasters, but more significantly for consumers the insurance companies are basically a law unto themselves when it comes to paying out on insurance contracts.
As anyone who has tried to take on an insurance company knows all too well, the legal cards are stacked in the company’s favour.
There are times when insurance companies won’t think twice about calling in their lawyers to do whatever they can to delay payment. Forget about taking them to court as they will bleed you financially dry.
Needless to say, the companies are very quick to take your insurance premium, but can be very slow to pay out under the insurance contract.
Worse, they may even be quick to rely on confusing or bewildering definitions, as well as unfair contract terms to refuse to pay out under the insurance contract.
Like any industry there are ethical insurance companies who do the right thing for their customers and there are those companies which are only interested in charging you more and giving you less. Telling the difference is the real challenge for consumers.
Sure, insurance companies are businesses out to make money, but that doesn’t give them a licence to hide behind confusing definitions or unfair contract terms to avoid paying out under the insurance contract.
For starters, while there has much discussion about the need for a clear, industry wide definition of what constitutes a “flood” there has been little discussion about making sure that a standard definition of a flood is not misused by the insurance companies.
The real danger is that insurance companies will use a standard definition of a flood as a way to expand existing exclusions to their insurance contracts with a view to charging customers a new additional premium to get flood cover.
Drafting a standard definition will be legally and politically challenging as insurance companies will obviously be seeking to have the broadest possible definition of a flood as that would allow for the broadest possible exclusion for flood coverage and the maximum opportunity for them to charge a new additional premium to get flood cover.
That’s just a recipe for consumers to be fleeced on additional premiums.
Getting the right balance for consumers regarding a standard definition of a flood is only one of the challenges to reining in the insurance companies. It’s clearly important that there also be consistency on other definitions or wording used in insurance contracts.
A consistent industry-wide approach to key terms and wording of contracts would greatly assist consumers.
Another challenge is to ensure that insurance companies are fully accountable for their contract terms. This is where the Federal Government let consumers down very badly a couple of years ago when it decided to exclude insurance contracts from the new national laws against unfair contract terms.
These new laws are meant to protect consumers from those nasty aspects of consumer contracts such as the fine print and one sided contract terms that severely disadvantage consumers.
Regrettably, as a result of insurance contracts being excluded from the new laws by the Federal Government, consumers who are victims of unfair terms in insurance contracts can’t use the new laws to make the companies legally accountable for their nasty contract terms.
Why the exclusion for the insurance companies? Quite simply they are a very powerful lobby group who don’t hesitate to throw their weight around.
They use the old rehashed and self serving argument that laws against unfair contract terms would create uncertainty. Unfortunately, the Federal Government has fallen for that sneaky argument on insurance contracts and has left consumers seriously exposed to unfair insurance contracts.
Interestingly, the Federal Government was not fooled by the uncertainty argument in relation to other consumer contracts which are covered by the new laws. So, if the new laws against unfair contract terms can apply generally to consumer contracts, then they should also apply to insurance contracts.
Clearly, the Federal Government needs to make up for its previous mistake and move quickly to make the insurance companies accountable for any unfair insurance contracts.
Any concern with uncertainty can easily be addressed by the Federal Government accepting this author’s recommendation that the new laws be amended to provide for “safe harbours” under the laws.
Safe harbours would allow a company to voluntarily apply to the ACCC for an exemption from the new laws where the ACCC finds that a particular contract and its terms are not unfair under the laws.
Under this framework the ACCC would carefully scrutinise the contract and ensure that there was no fine print or terms that severely disadvantage consumers. Once approved by the ACCC the contract could not be challenged under the new laws.
Now that would provide the insurance companies with complete certainty and would remove any possible argument against insurance contracts being covered by the new laws against unfair contract terms.
That would be a win/win situation as consumers would get fairer contracts and insurance companies would get certainty under the new laws. Safe harbours would also enable the new laws to be extended to cover insurance contracts taken out by small businesses.
With such a clear opportunity to tackle unfair insurance contracts it’s time the Federal Government moved quickly to make insurance companies fully accountable for their contracts.
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