Commerce and Consumer Affairs Minister Kris Faafoi is conducting a review of insurance law in a bid to get consumers a fairer deal.
Fixing the insurance industry requires fixing a broken court system, says Séamus O'Cromtha from the "Prisoners of Tower" protest group.
An overhaul of insurance industry rules has taken a step forward with Commerce Minister Kris Faafoi inviting submissions from the public on what needs to change.
But O'Cromtha, one of a number of Tower policyholders, locked in a court battle to get his earthquake-damaged Christchurch home repaired, said there were some glaring omissions in the areas the discussion paper covered.
"I didn't expect to be sitting in my earthquake-damaged house seven years after the original trigger event," he said. "I still haven't got to the court."
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O'Cromtha fears Faafoi's consultation will be window-dressing unless access to timely justice is addressed.
But he said the Government was conflicted as owner of EQC and Southern Response.
He estimated there were currently around $1 billion of claims in front of the courts, with just two judges handling the majority of the cases.
O'Cromtha also called on the Government to review the legal onus for individual policyholders to prove they have a claim.
People will have until July 13 to have their say on insurers.
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People will have until July 13 to have their say on insurers.
Policyholders finding themselves in a fight with insurers often lacked the resources to do it, forcing them to settle.
"It's ridiculous. We really needed an independent regulator for insurers that has teeth, and can impose sanctions," O'Cromtha said.
Releasing the discussion paper, Faafoi said people's experiences following the Christchurch earthquakes and a Royal Commission in Australia had highlighted "the need to look at whether greater regulation of insurer conduct is required".
In response to O'Cromtha, Faafoi said the consultation was an opportunity for the public to raise their all their concerns.
Faafoi said there were "significant problems" with insurance contract law that were undermining the effectiveness of insurance, and affecting people who did not receive the support they expected from their policies.
It's not just house and car insurance under the spotlight.
"I have heard, for example, that consumers are sometimes not covered for losses or unable to claim for important needs like health treatment because they innocently did not disclose seemingly unrelated matters to the insurer," he said.
"This is really tough for people who genuinely believe they have met their requirements and are later unable to rely on benefits of insurance. Onerous disclosure requirements are one of the issues we need to consider and, I hope, an issue that will be addressed in feedback from submitters."
Spotlight on four areas
There are four core areas of possible reform raised the discussion paper issued by Faafoi on Tuesday.
The first is to bring insurance policies under the Fair Trading Act.
Currently, insurance contracts are carved out of some aspects of the act, meaning they can contain "unfair" contract terms.
The second is to address the unfair disclosure rules, which it is easy for ordinary people to trip over.
People taking out insurance have a duty to tell an insurer everything that would be "material" to a "prudent underwriter".
Anyone who fails to do so, can have their policy torn up, and a claim declined, which is unfair as most people have no idea what a prudent underwriter considers to be material when deciding whether to issue a policy, and what premiums to charge.
Someone who accidentally fails to disclose something, can innocently pay premiums for years, and only find out at claims time that they have paid their money for nothing.
"The duty to interpret what is meant by material in influencing the judgement of a prudent insurer is overly onerous on the consumer," this discussion document says.
It's something the Insurance Ombudsman Karen Stevens has campaigned on for more than a decade.
Questions are also being asked about whether insurers are too lightly regulated.
The IMF, in its last review of New Zealand, said regulation of the conduct of insurers was "inadequate".
The discussion paper also asks for any evidence that insurance intermediaries like banks and insurance advisers are behaving badly, and whether sales incentives like high up-front commissions, which can reach more than 200 per cent of first year's premium, are causing poor outcomes.
Just last week, the Financial Markets Authority revealed that insurance companies had paid $18 million to take insurance advisers on trips overseas in a two-year period, which their clients may not have been aware of.
Insurers are not required to publish figures of the number of claims they turn down, and why.
An investigation by ASIC in Australia found very different claims-paying records from insurers, but no such data has been published in New Zealand.
There may also be competition issues that are resulting in people paying excessive prices for insurance.
Consumers found it hard to compare prices and policies, MBIE said.
Faafoi wants to know what can be done to change this. Overseas, minimum policy conditions are imposed on some kinds of policies, but New Zealand tech companies have struggled to do online comparison engines, as insurers have blocked their efforts by refusing to share their pricing.
The deadline for submissions on the discussion paper is July 13.
Proposals for law change will be with the minister by March next year.
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