MBIE consults on options for significant reform of the insurance sector

Friday 3 May 2019

Authors: David Friar and Glenn Joblin

​​​​​​​The Ministry of Business, Innovation and Employment (MBIE) is consulting on two options papers relating to the insurance sector. 

These follow on from MBIE's mid-2018 consultation on insurance contract law and conduct regulation of insurers (see our earlier update here), as well as the recent findings from the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the FMA and RBNZ reports into the conduct and culture of banks and life insurers.

The options papers address significant issues for the insurance industry, and provide interested parties with an opportunity to express their views before final decisions are made on the proposed legislative reforms.

Options paper on the conduct of financial institutions

The options paper on a new conduct regime for financial institutions includes conduct issues related to the broader insurance sector. Submissions on this paper will inform MBIE's recommendations on the legislation the Government has signalle​d it will introduce for banks and insurers by the end of this year. The closing date for submissions is 7 June 2019.

Various options are discussed in Part 3 of the psaper to address problems which have been identified with the current regime (as set out in Part 2 of the paper). These largely focus on:

  • the imbalance of power between financial institutions and consumers;

  • products not being designed with good customer outcomes in mind;

  • sales being prioritised over good customer outcomes;

  • weak systems and controls to manage conduct risk; and

  • a lack of accountability to ensure good conduct.

MBIE's current preferred options to address these problems include having a principles-based set of overarching duties which would apply to all aspects of an insurer's activities, such as:

  • a duty to consider and prioritise the customer's interest, to the extent reasonably practicable;

  • a duty to act with due care, skill and diligence;

  • a duty to manage conflicts of interest fairly and transparently;

  • a duty to ensure complaints handling is fair, timely and transparent; and

  • a requirement to have the systems and controls in place that support good conduct and address poor conduct.

These duties would be subject to executive accountability for any breaches, and would be packaged with more specific measures to:

  • alleviate the problems in the product design stage (that is, to ensure financial products are suitable for customers);

  • address concerns about product distribution, including conflicted remuneration and incentives encouraging the mis-selling of products; and

  • provide a more credible and effective enforcement regime.

MBIE has also put forward options specifically to address problems identified with insurance claims, which includes imposing a duty to ensure claims handling is fair, timely and transparent.

For further details on the Conduct of Financial Institutions Options Paper refer to MBIE's website here.

Options paper on insurance contract law

The second options paper sets out possible options for solving problems which have been identified with insurance contract law. Submissions for this paper close on 28 June 2019. The aim is to have legislation for this area introduced in mid-2020.

In this paper, MBIE is seeking feedback on options which include:

  • changes to the duty of disclosure for consumer insureds and businesses;

  • new disclosure remedies;

  • removing the insurance-specific exceptions to the unfair contract terms (UCTs) prohibitions in the Fair Trading Act 1986 so the generic UCT provisions would apply to insurance contracts unconditionally, or alternatively, tailoring the generic UCT exceptions to accommodate specific features of insurance contracts; and

  • introducing requirements to assist consumers understand and be able to compare insurance policies.

The paper also puts forward options to address a number of miscellaneous issues that were raised in the 2018 issues paper. This includes issues relating to:

  • the law concerning a failure to notify a claim in time under the Insurance Law Reform Act 1977;

  • the responsibility for insurance intermediaries' actions;

  • third party access to liability insurance monies under the Law Reform Act 1936;

  • the duty of utmost good faith; and

  • the consolidation of various insurance related statutes.

For further details on the Insurance Contract Law Review Options Paper refer to MBIE's website here.


If you would like assistance with making submissions to MBIE on either of the options papers, please contact​ the authors or your usual Bell Gully advisor.


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • David Friar

    Partner Auckland
  • Glenn Joblin

    Partner Auckland
Related areas of expertise
  • Insurance
  • Commercial
  • Consumer law
  • Financial services regulation