The Contracts of Insurance Act 2024 (CoIA) and the Contracts of Insurance (Repeals and Amendments) Act 2024 (CoIRA) bring plain-language drafting and unfair contract terms closer together than ever before. Under CoIA, insurers will need to think about clarity and fairness as connected obligations, and not as separate matters.
A new plain-language requirement
Section 20 of the CoIRA inserts a new subpart 6B into Part 6 of the Financial Markets Conduct Act 2013 (FMCA), applying to consumer insurance contracts and to life or health insurance contracts. One new section, s 447A, requires the insurer to ensure such a contract “is worded and presented in a clear, concise, and effective manner”. Interestingly, this is also paired with a positive obligation: in performing that duty, the insurer must have regard to whether the wording and presentation of the contract assist consumers to understand their rights and obligations under the contract. “Concise” is defined by reference to the wording and presentation of particular terms, not overall document length, so a shorter policy is not, by itself, a concise one.
Companion provisions ss 447B and 447C extend the theme, requiring compliance with prescribed form and presentation requirements and public disclosure of certain information to support consumer decision-making and transparency. Like the majority of the CoIA reforms, these provisions have been enacted but are not yet in force, with a long-stop commencement date of 15 November 2027.
Many insurers have already moved towards a more modern, plain-language style of policy drafting well ahead of any formal requirement to do so. Section 447A formalises this direction and gives it statutory backing, but it is not a wholly novel concept to the industry.
Unfair contract terms: A narrower safe harbour
The unfair contract terms changes under the CoIA reforms mark a significant shift from the current position. Sections 8 to 12 of the CoIRA amend the Fair Trading Act 1986 in ways that meaningfully recalibrate how the existing ‘exceptions’ apply to insurance contracts.
Under the current law, s 46L(4) of the Fair Trading Act reverses the ordinary presumption for a defined list of core insurance terms (including terms identifying the risk insured, the sum insured, exclusions, the basis for settling claims, the premium, the duty of utmost good faith, and disclosure requirements) deeming them automatically “reasonably necessary” to protect the insurer’s legitimate interests. This presumption reversal will be repealed.
In its place, new s 46KA defines (and essentially limits) the concept of the “main subject matter” of an insurance contract, and therefore the aspects of the contract that are beyond unfair contract terms challenge altogether. The only matters that will be considered the “main subject matter” are set out in a closed list, similar but not exactly the same as the existing list under s 46L mentioned above.
The key takeaway for insurers is that the new regime is likely to bring a wider range of provisions, and different aspects of the contractual relationship, within the scope of unfair contract terms scrutiny than is currently the case. Terms dealing with matters such as claims-handling discretions, variation rights, or cancellation triggers that might previously have been shielded by the s 46L(4) presumption will need to be assessed afresh against the ordinary unfairness test, without the benefit of that reversed presumption.
The role of transparency
Plain-language drafting is not merely good practice, it is a key feature of the unfair contract terms test itself. A court assessing whether a term is unfair under the Fair Trading Act must consider “the extent to which the term is transparent” and the contract as a whole. ‘Transparency’ in the Fair Trading Act is defined as meaning a term that is:
- expressed in reasonably plain language; and
- is legible; and
- is presented clearly; and
- is readily available to any party affected by the term.
For insurers navigating the narrower exceptions described above, well-drafted, transparent terms are one of the more practical levers available for managing the unfair contract terms risk.
Watching case law develop
In the absence of case law or other specific regulatory guidance as to how the narrower s 46KA exceptions will be applied in practice, insurers are in a genuinely difficult position when assessing which terms remain protected and which do not. This uncertainty may justify a more cautious initial approach to policy wording pending clearer guidance or early judicial consideration.
This is an area we expect to develop significantly once the regime comes into effect, and we will be following it closely and with interest.
Trans-Tasman comparison
Australia offers a useful, if imperfect, point of comparison. Although the insurance-specific aspects and tests are different, the general statutory unfair contract terms tests are materially the same across New Zealand and Australia.
Australian courts considered plain-language presentation and unfair contract terms together in Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2025] FCAFC 7. This case involved litigation over a home and contents insurance notification term and examined both whether the clause was drafted transparently enough for consumers to understand their obligations, and whether the term itself created an unfair imbalance. One of the points in dispute was the interpretation of a notification obligation on the insured, specifically a provision stated as follows: “you need to tell us if anything changes about your home or contents”. The Court favoured a narrower interpretation of the provision, i.e. that the obligation did not literally extend to ‘anything’ having changed, and that, as a result, the alleged unfairness was not well established.
The discussion and analysis in this case highlights the importance of careful plain-language legal drafting, where the aim should always be to make sure legal certainty is not compromised when drafting is made more ‘plain’. From our experience, across the full spectrum of financial services and products, this can be a challenging balancing act.
Looking ahead
Depending on where an insurer currently sits on its plain-language journey, it may need to treat plain-language drafting and unfair contract terms exposure as a single workstream rather than two, as the CoIA’s implementation timeline progresses. Adherence to the new FMCA duties is likely to be one of the more effective ways of managing unfair contract terms risk under a regime that, in several respects, offers a narrower safe harbour than insurers currently enjoy.
We will continue to track how these regimes develop as the CoIA moves towards commencement.
