The Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Insurance Contracts Act 1984 have been amended by the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Act 2020 to extend the existing protections of the unfair contract terms regime to insurance contracts governed by the Insurance Contracts Act 1984.

Background: Examples of unfair contracts

The amendments commence on 5 April 2021. The unfair contract terms regime will apply to insurance contracts that are new or renewed after the commencement date. The amendments will also apply to terms of a contract varied after the commencement date.

Exclusions from unfair insurance contracts regime

• Terms that define the main subject matter of an insurance contract will be excluded from the unfair contract terms regime. The main subject matter of an insurance contract will be limited to terms that define what is being insured.
• Terms defining the upfront price payable of an insurance contract will be excluded from the unfair contract terms regime.
• Terms defining the quantum or existence of the excess or deductible of an insurance contract will be excluded from the unfair contract terms regime if they are disclosed upfront and are transparent.
• Third party beneficiaries of an insurance contract covered by the regime will be able to bring a claim under the unfair contract terms regime. Third parties to other kinds of contracts will continue to be unable to bring claims.

Under the Insurance Contracts Act 1984 parties to insurance contracts have an obligation to act with the utmost good faith. The changes do not affect this obligation, with the duty of the utmost good faith operating independently of the unfair contract terms regime.

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