The introduction of New Zealand's Contracts of Insurance Act 2024 marks a significant shift in the landscape of insurance law, imposing new obligations on brokers and reshaping their roles in managing disclosure processes and client interactions. Central to these reforms is a fundamental recalibration of the duty of disclosure, particularly distinguishing between consumer and non-consumer insurance contracts.

Under the new legislation, consumers are required only to take reasonable care not to make misrepresentations to insurers, replacing the prior obligation to disclose all information that could influence an insurer's decision. This duty is confined to answering questions posed by the insurer rather than volunteering unsolicited information. In contrast, non-consumer policyholders, including commercial and business clients, must provide a “fair presentation of the risk.” This entails disclosing all material circumstances known or that ought to be known, which notably includes information held not only by the policyholder but also by brokers and their employees. Such distinctions necessitate brokers to carefully review and update proposal forms, ensuring that questions posed to clients are clear, specific, and comprehensive to meet these new disclosure expectations.

Brokers are also tasked with updating all documentation and communications, including proposal forms and policy documents, to reflect the altered disclosure standards and clearly outline the consequences of non-compliance. Transparent communication with clients is paramount, especially to explain the differing duties between consumer and non-consumer contracts and the implications this has for disclosures and potential remedies. This is critical in helping clients navigate their revised legal obligations under the Act.

In practice, these changes require brokers to enhance their systems for collecting, storing, and managing material information rigorously. This includes keeping detailed records of disclosures made to insurers, identifying who made the disclosure and when, to demonstrate compliance with the Act. Such record-keeping is essential not only for regulatory adherence but also for managing risk and client trust.

Comprehensive staff training programs are urgent priorities, focusing on the new legal requirements governing disclosure duties and intermediary obligations. Brokers must overhaul internal processes, including those relating to the handling of disclosures, client funds, and third-party information requests. Proper management of client accounts is now under tighter scrutiny, with rules mandating timely payments to insurers and policyholders, alongside the segregation of funds to ensure financial integrity.

An additional dimension introduced by the Act is the allowance for third parties to claim directly against insurers in cases where policyholders are insolvent or deceased. Brokers may find themselves supporting such claims and adhering to strict timeframes for responding to third-party information requests. This new regime may also require the development of policies regarding whether and when to charge fees for providing information to third parties, a practice permitted by the Act but new to many brokers’ operational frameworks.

These reforms, as highlighted by legal experts and industry commentators, also bring about higher penalties and a recalibration of potential revenue streams for brokers. The increased obligations and complexities underscore the need for brokers to be well-versed in these changes and proactive in advising and supporting clients. Failure to comply with the new duties could expose brokers and their clients to significant legal and financial consequences.

Moreover, the Act signals a broader push towards modernising insurance contract law to reflect current market realities. For instance, it is anticipated that some smaller business contracts could now be classified as consumer insurance, thereby altering the applicable disclosure regime and requiring brokers to adjust their advisory approaches accordingly. There is also the possibility of forthcoming regulations that will dictate the format, layout, and presentation of insurance contracts, further shaping broker practices in documentation and communication.

In sum, New Zealand’s Contracts of Insurance Act 2024 imposes substantial changes that compel brokers to reassess and revamp their entire operational infrastructure—from client engagement and documentation to staff training and compliance systems. Brokers who adapt swiftly to these new standards will be better positioned to support their clients effectively while navigating the evolving legal landscape.

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Source: Noah Wire Services