Are you ready? Laws on unfair contract terms apply to insurance from 5 April 2021

22 March 2021

  • Unfair contract terms protections will apply to consumer and small business insurance contracts entered into or renewed from 5 April 2021, and to terms in existing contracts that are varied from 5 April 2021.
  • ASIC has conducted a targeted review of insurance contracts to identify potential unfair terms. We expect insurers will proactively review their consumer and small business standard form contracts and obtain their own legal advice.
  • Lenders should continue to review their consumer and small business loan contracts to ensure they are fair.

Unfair contract terms protections apply to insurance contracts

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.

ASIC is Australia’s corporate, markets and financial services regulator.

Last updated: 22/03/2021 12:00