On February 13, 2025, InsurTechNZ hosted an event titled “How might the Contracts of Insurance Act re-define the customer relationship?” sponsored by Partners Life. The event focused on the implications of the newly passed Contracts of Insurance Act 2024, which will significantly alter insurance practices in New Zealand. The Act aims to promote confident participation in the insurance market and ensure fair contractual operations. It overhauls insurance legislation that has remained largely unchanged for over a century. The Act is currently law but will be implemented over a three-year transition period, starting from a date yet to be determined by Order in Council.
Mark Banicevich, Head of Industry Engagement at Partners Life, opened the event by outlining the major changes introduced by the Act. Following his presentation, Jon Davies, CEO of InsuredHQ, moderated a panel discussion featuring Charlotte Cockrell, Head of Legal, Customer Remediation and Company Secretary at Fidelity Life; Levonne Bell, General Manager New Business and Underwriting at Partners Life; and Russell Hutchinson, Director of Quality Product Research.
Key Changes and Challenges:
The panel identified several key changes and challenges arising from the Act:
- Duty of Disclosure: A major shift is the change in the duty of disclosure. Currently, consumers are responsible for disclosing all information relevant to their insurance application. The new Act shifts this responsibility to insurers, who must now ask specific questions to elicit necessary information. This change has the potential to lengthen application processes, posing a challenge for insurers seeking to maintain a positive customer experience. For non-consumers (businesses), the standard is different; they must provide a fair representation of risk.
- Staff Training and System Updates: Insurers face the significant task of training staff on the new regulations and updating technology, including legacy systems, to comply with the Act. The three-year transition period, while seemingly lengthy, was emphasized as a short timeframe for implementing such comprehensive changes.
- Policy Documentation: The Act mandates clear, concise, and effective policy documentation, often referred to as “plain English.” This requirement, found within amendments to the Financial Markets Conduct Act, necessitates a review and overhaul of existing policy documents. The panel highlighted the current state of policy documents as generally poor, often relying on complex structures like introductory letters, schedules, and definitions. Digital policies offer an opportunity to dynamically update information, such as the current sum insured after CPI increases. However, this requires complex system integration.
- Data Access and Transparency: The Act raises questions about data access, particularly concerning electronic health records. While technology like underwriting rules engines and generative AI could streamline processes, accessing sensitive data like medical records requires transparency and clear communication with customers about when and why their data is being accessed.
- Claims Processing: The panel discussed the potential for technology to improve claims automation, particularly with parametric cover. They also emphasized the need for better claims tracking and communication with customers. Improved underwriting processes are expected to simplify claims handling.
- Premium Review Process: The Act prompts a reconsideration of premium review processes, particularly regarding yearly renewable term (YRT) policies and price increases. The fairness of current repricing practices, often occurring every two to three years in life and health insurance, was questioned.
- Foreign-Born Applicants: The complexities of underwriting foreign-born applicants without New Zealand medical history were raised as an ongoing challenge.
- Policy Wording Passbacks: The issue of policy wording passbacks, particularly for closed products, was discussed, raising concerns about fairness and potential regulatory scrutiny.
- Unfair Contract Terms: The Act restricts unfair contract terms, limiting the exclusions insurers can apply. The panel noted that while some terms are currently protected, this is likely to change.
- Adviser Fatigue: The impact of regulatory change on advisers, who may experience fatigue from constant updates, was acknowledged.
Opportunities for Insurtech:
The Contracts of Insurance Act presents numerous opportunities for Insurtech entities:
- Streamlining Underwriting: Technology can play a crucial role in streamlining underwriting processes, including the use of underwriting rules engines, generative AI, and real-time access to electronic health records.
- Improving Customer Experience: Insurtech solutions can enhance the customer journey by creating seamless digital experiences, eliminating paper applications, and providing faster, fairer, and more digital interactions.
- Claims Automation: Technology can facilitate claims automation, particularly for parametric covers, leading to faster and more efficient claims processing.
- Personalized Products: The Act allows for the creation of more personalized products with varying options, which can be tailored to individual customer needs and impact the underwriting journey.
- Dynamic Policy Documents: Technology enables the creation of dynamic policy documents that automatically update with relevant information, such as the current sum insured.
- Enhanced Transparency and Trust: The Act, coupled with Insurtech solutions, can foster greater transparency and trust between insurers and customers.
Overall, the Contracts of Insurance Act 2024 represents a significant shift in the New Zealand insurance landscape. While it presents challenges for insurers in adapting to new requirements and updating systems, it also offers substantial opportunities for Insurtech companies to drive innovation, improve customer experiences, and enhance efficiency within the industry. The panel emphasized the importance of proactive planning and embracing technology to navigate the changing regulatory environment and redefine the customer relationship in the insurance sector. The transition period provides a window for insurers to strategically implement changes and leverage Insurtech solutions to meet the evolving needs of customers.