Treasury recently released an exposure draft of the Insurance Contracts Amendment Regulation 2012 (No.2) (draft Regulation) which will amend the Insurance Contracts Regulations 1985 to require an insurer to provide a consumer with a one page key facts sheet (KFS) for home building and home contents insurance policies (combined and individual).
For background information on this reform, please see our previous update here.
According to the Explanatory Statement on the draft Regulation, the KFS is intended to reduce consumer confusion regarding what is and is not included in insurance contracts and provide consumers with a mechanism to easily compare the key aspects of insurance contracts.
When a KFS is not necessary
The draft Regulation requires an insurer to provide a KFS as soon as reasonably practicable but not later than 14 days after the consumer first requests information about the contract. The KFS may be provided by electronic means if a consumer provides their email address to the insurer for the purpose of receiving the KFS. The electronic form of the KFS may be either an attached copy of the KFS or a hyperlink to the KFS.
Access to the KFS through an insurer’s website (where possible) will be required. The KFS will also be required to be kept on the insurer’s website in a format which is able to be downloaded by a member of the public.
As anticipated in the Discussion Paper previously released on the KFS, an insurer will not be required to provide a KFS to a consumer if:
- the insurer has already provided the consumer with a KFS at a previous time and the only difference is the date;
- the insurer believes on reasonable grounds that the consumer has already been provided with a KFS by another party and the only difference is the date; or
- the consumer informs the insurer that the consumer does not want the KFS.
Form and contents of KFS
The draft Regulation prescribes the content of the KFS and for it to be presented in a specified format and structure to aid the comparability of information. There are two forms of KFS for home buildings insurance contracts and home contents insurance contracts although the two forms are largely similar. The contents of the KFS are not as detailed as proposed in the Discussion Paper. The KFS is divided into 5 sections.
General policy specific information
In this first section, the insurer will be required to insert:
- the date of the printing of the KFS;
- their Australian Financial Services Licence number; and
There is a disclaimer that the KFS “is not an insurance contract”.
This section contains a general disclaimer that the KFS:
“sets out a summary ofsomeof the main risks covered and not covered by this policy and other information you should consider. For all of the exclusions, conditions and limitations that apply in relation to the risks covered by this policy, you should read theProduct Disclosure Statement(PDS) and all relevant policy documentation”.
In this section, the insurer will be required to include a description of the type of policy outlined in the KFS in accordance with prescribed descriptions of types of cover as provided in step 4 of the KFS.
In the table, the insurer is required to:
- Insert whether the risks outlined in the table are covered, not covered, optional or have some level of partial cover (where a sub-limit or cap applies).
- Insert a policy specific example of a main condition/ exclusion that applies to the policy. This example is required to be an example which a reasonable person would consider to be a main condition/exclusion in relation to the particular type of contract.
The requirement to include an example of a main condition/exclusion will require an insurer to make a decision as to what a consumer may consider to be the main condition or exclusion in the policy.
To make it clear that the insertion of the example is not intended to be the only exclusion/condition or what all consumers would consider to be the main condition/exclusion, a prescribed statement is required at the bottom of the first page of the KFS indicating that:
“The examples provided may only be some of many conditions/exclusions contained in this policy. These examples are considered to be the main conditions /exclusions to which most consumers would generally consider to be the main conditions/exclusions.”
According to the Explanatory Statement to the draft Regulation, when determining which conditions or exclusions should be considered to be main conclusions or exclusions, insurers should give regard to:
- the type of policy to which it (the KFS) is being developed;
- the potential detriment that may occur if a consumer was not aware of the condition/exclusion; and
- a consumer’s understanding of the issues surrounding the risk to which the example is being provided.
In addition to inserting the policy specific main condition or exclusion, in situations where the insurer inserts an exclusion the insurer is required to preface that example with the words not covered for.
In this section, the insurer will be required to insert:
- (when appropriate) a policy specific example of a limit that applies in relation to the policy;
- (when appropriate) a policy specific example of a common excess that applies to the policy;
- the number of days provided for the cooling off period in respect to the policy; and
- the amount of legal liability insurance cover provided in respect to the policy.
This section also contains a disclaimer that there are other general conditions and exclusions that limit or exclude cover and to refer to the PDS for further details.
This section contains general information on the different types of insurance cover available. The insurer is required to insert their contact information for further information.
There is a tight timeframe for making submissions on the draft Regulation. The closing date for submission is 24 August 2012. Copies of the draft Regulation, KFS and Explanatory Statement can be found here.