What is the policy provision that prevents an insurance company from altering its agreement?

There are four basic parts to an insurance contract:

• Declaration Page
• Insuring Agreement
• Exclusions
• Conditions

It is important to understand that multi-peril policies may have specific exclusions and conditions for each type of coverage, such as collision coverage, medical payment coverage, liability coverage, and so on. You will need to make sure that you read the language for the specific coverage that applies to your loss.

This page is usually the first part of an insurance policy. It identifies who is the insured, what risks or property are covered, the policy limits, and the policy period (i.e. time the policy is in force).

For example, the Declarations Page of an automobile policy will include the description of the vehicle covered (e.g. make/model, VIN number), the name of the person covered, the premium amount, and the deductible (the amount you will have to pay for a claim before an insurer pays its portion of a covered claim).

Similarly, the Declarations Page of a life insurance policy will include the name of the person insured and the face amount of the life insurance policy (e.g. $25,000, $50,000, etc.).

This is a summary of the major promises of the insurance company and states what is covered. In the Insuring Agreement, the insurer agrees to do certain things such as paying losses for covered perils, providing certain services, or agreeing to defend the insured in a liability lawsuit. There are two basic forms of an insuring agreement:

• Named–perils coverage, under which only those perils specifically listed in the policy are covered. If the peril is not listed, it is not covered.
• All–risk coverage, under which all losses are covered except those losses specifically excluded. If the loss is not excluded, then it is covered. Life insurance policies are typically all-risk policies.

Exclusions take coverage away from the Insuring Agreement. The three major types of Exclusions are:

• Excluded perils or causes of loss
• Excluded losses
• Excluded property

Typical examples of excluded perils under a homeowners policy are flood, earthquake, and nuclear radiation. A typical example of an excluded loss under an automobile policy is damage due to wear and tear. Examples of excluded property under a homeowners policy are personal property such as an automobile, a pet, or an airplane.

Conditions are provisions inserted in the policy that qualify or place limitations on the insurer’s promise to pay or perform. If the policy conditions are not met, the insurer can deny the claim. Common conditions in a policy include the requirement to file a proof of loss with the company, to protect property after a loss, and to cooperate during the company’s investigation or defense of a liability lawsuit.

Most policies have a Definitions section, which defines specific terms used in the policy. It may be a stand-alone section or part of another section. In order to understand the terms used in the policy, it is important to read this section.

An insurer may change the language or coverage of a policy at the time of the policy renewal. Endorsements and Riders are written provisions that add to, delete, or modify the provisions in the original insurance contract. In most states, the insurer is required to send you a copy of the changes to your policy. It is important that you read all Endorsements or Riders so you understand how your policy has changed and if the policy is still adequate to meet your needs.

To obtain a copy of your insurance policy, please contact your insurance agent or company.

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Following Government reforms passed in early 2020, unfair contract terms protections will apply to insurance contracts from 5 April 2021. The protections will apply to new insurance contracts that are entered into, or contracts that are renewed, on or after 5 April 2021. If a term of an existing contract is varied on or after 5 April 2021, the protections will generally apply to that term but not the rest of the contract.

In readiness for the start of this reform, ASIC has undertaken targeted supervisory work by reviewing a range of insurance contracts and has worked with insurers to encourage them to remove or qualify potential unfair terms. Through ASIC’s work many insurers have made important changes to insurance policies sold to consumers to help make them fairer.

Examples of changes made include:

• removing terms that gave insurers unilateral discretion to do something
• removing or qualifying terms to reduce barriers for an insured person to lodge a legitimate claim
• qualifying overly broad terms so that they only apply in specific situations
• extending certain timeframes that might be difficult for an insured person to meet
• removing or qualifying terms where compliance with preconditions was not feasible
• amending terms to provide greater collaboration between the insurer and the insured around decision-making processes
• amending insurance policies to provide greater transparency and clarity for consumers.

As a result of the reform, and ASIC’s work, many insurers have proactively identified terms and either removed, reworded or qualified them.

ASIC’s expectations of insurers

From 5 April 2021 ASIC expects all insurers to ensure that consumer and small business standard form contracts have been reviewed for fairness and that they obtain their own legal advice in relation to potential unfair contract terms where needed.

ASIC will continue to monitor insurance contracts for unfair terms and we will consider the range of our regulatory powers where we are concerned about non-compliance and consumer harm. ASIC will continue to liaise with consumer representatives and others to identify areas of ongoing consumer harm.

Obligations for fairness in small business loan contracts

ASIC reminds lenders that the unfair contract terms protections apply to all standard-form small business loan contracts entered into since November 2016, as well as to consumer loans.

In March 2018, ASIC released Report 565: Unfair contract terms and small business loans. In the report, ASIC:

• identifies a range of terms in small business loan contracts that ASIC considers are at risk of being unfair; and
• provides general guidance to all small business lenders to help them assess whether their standard form loan contracts meet the requirements under the unfair contract terms law.

We expect all lenders (both ADI and non-ADI lenders) to meet their obligations and will consider taking action where it sees terms that appear unfair.

Find out more

In October 2020, ASIC released updated Information sheet 210: Unfair contract term protections for consumers and Information sheet 211: Unfair contract term protections for small businesses.