Duty to take reasonable care not to make a misrepresentation replaces the duty of disclosure

Recent regulatory changes have resulted in the ‘duty of disclosure’ being replaced with a ‘duty to take reasonable care not to make a misrepresentation’ when entering into, varying, extending or reinstating a consumer insurance contract.

We will adopt the new duty for TAL customers on 24 September 2021, and for Asteron Life customers from 1 October 2021.  From this date, all forms and documents which currently contain the ‘duty of disclosure’ will be updated to reflect the new ‘duty to take reasonable care not to make a misrepresentation’.

This change to disclosure obligations will also apply to any transactions (including submitted applications or policy alterations) which are in-progress on the implementation date.

For further information, please refer to the FAQs below:

In response to the recommendations of the Financial Services Royal Commission, some important changes have been made to the Insurance Contacts Act 1984 (Cth). These include a change to the client’s duty to the insurer when entering into, varying, extending or reinstating a consumer insurance contract.  

Until recently, clients had a duty of disclosure, which required them to disclose to the insurer every matter that they knew, or could reasonably be expected to have known, that would be relevant to the insurer’s decision whether to accept the risk of the insurance, and if so on what terms. As a result of this legislative change, when entering into a ‘consumer insurance contract’, clients will no longer have a duty of disclosure. Instead, when applying for insurance they will be have a duty to take reasonable care not to make a misrepresentation to the insurer. (In general, a misrepresentation is a false answer, an answer that is only partially true, or an answer which does not fairly reflect the truth.) 

Whether the client took reasonable care not to make a misrepresentation will be assessed by reference to all of the relevant circumstances.  This includes considering the warnings and information the customer was given, the clarity of the questions they were asked, any of their circumstances that the insurer was or should have been aware of. 

Why was the law changed?

The Royal Commission recommended this change for consumer insurance contracts because it considered that insurers are better placed than customers to know what information is relevant to the decision whether to accept the risk of the insurance, and if so on what terms. In addition, most insurers already ask questions about the things they want to know during the application process. 

We consider this to be an important step to ensure trust and confidence in our industry and believe this to be a positive change for you and your clients. 

What are the practical effects of the change?

References to the duty of disclosure have been replaced with references to the duty to take reasonable care not to make a misrepresentation in application forms and disclosure documents. (To promote alignment at an industry level, we have adopted the Financial Services Council’s model explanation of the duty, to clearly explain to customers the importance of taking care to answer the questions in the application accurately.) New versions of TAL forms and disclosure documents are being released on 24 September 2021, and new versions of the Asteron forms and disclosure documents are being released on 1 October 2021.
 
There are also some changes to the way questions are presented in application forms, however the topics of the questions have not changed, and are still concerned with your client’s health and medical history, occupation, income, lifestyle, pastimes, and insurances.  

As always, we ask that you inform your client of their duty, encourage them to think carefully about each question in the application form, answer truthfully, accurately, and completely, review their answers, and as always, ask for help if they need it.     

When does the change occur?

We have adopted different implementation dates for Asteron and TAL for the following reasons:

• For TAL customers, the change will take place on 24 September 2021, in line with the release of the latest update to our flagship retail product series, TAL Accelerated Protection. 
• For Asteron customers, the change will occur in line with the date of the transfer of Asteron’s life insurance business to TAL on 1 October 2021. For more information about the Part 9 transfer, please visit our website.

What does this change mean for new applications or alterations accepted after the implementation date?

The new duty applies to new policies entered into on or after the implementation date. There is no change to the disclosure duty for existing policies which were issued before the implementation date.

If your client wishes to make an underwritten alteration to their policy after the implementation date (such as to increase a sum insured, add cover, reduce a waiting period or extend a benefit period), the new duty will apply to the answers they give in their alteration application. 

For some customers, this could mean that two duties apply to their cover: the duty of disclosure, which applies to any component of their cover that was issued prior to the implementation date; and the duty to take reasonable care not to make a misrepresentation, which applies to cover that was issued on and from the implementation date (such as an increase to the sum insured after the implementation date).

Some customers will have applications in progress on the implementation date. This means that they will have made an application subject to the duty of disclosure, but the applicable duty will change prior to their cover being issued. We are dedicated to supporting you and your clients through this change. We will notify these customers so they understand their disclosure obligations have changed, however they will not be required to resubmit their applications, which we will continue to assess according to the duty to take reasonable care not to make a misrepresentation.  These communications will be distributed by email on 24 September 2021 for TAL, and 1 October 2021 for Asteron. 

There are some key dates and requirements you should be aware for your clients with in-progress quotes or applications for new Accelerated Protection policies:

• All new business quotes and completed applications for policies with the Product Disclosure Statement dated 1 April 2021 must be received by 30 September 2021
• Beyond the 30 September 2021, quotes and incomplete applications will expire
• You need to provide your clients with an in-progress quote with a copy of the relevant SPDS before their application is submitted.

You can access a copy of the SPDS for the most recent series of Accelerated Protection (PDSs dated 27 March 2020 or 1 April 2021) here.

Are there any expiration dates for quotes and incomplete applications for an alteration to an existing policy?

There are a small number of policy alterations that will no longer be available for existing TAL and Asteron Life policy holders, which also need to be received by us no later than 30 September 2021.  Beyond the 30 September 2021, quotes and incomplete applications for these alterations will expire.

These include:

For policies issued under PDS dated 1 April 2021

• Addition of Child’s Critical Illness benefit 
• Addition of Income Protection or Business Expense insurance
• Addition of benefit options for Income Protection insurance (e.g. Increasing Claims Option, Accident Benefit Option, Critical Illness Option) 
• Upgrading Income Protection insurance from Standard to Premier

For policies issued under PDS dated 1 April 2021 or earlier

• Increases to the Income Protection Benefit Period from 1, 2 or 5 years to age 65 or 70 

Further information

Should you require any further information, please get in touch with your Business Development Manager or our Adviser Service Centre on 1300 351 133 (Monday to Friday 8:00am - 7:00pm AEST).

IMPORTANT INFORMATION: This information has been prepared for use by licensed advisers in their professional capacity only, and is not intended to be provided to nor used by your clients for the purposes of making a decision about any financial product. Any advice is general in nature only and does not take into account your client’s objectives, financial situation or needs. Before acting on it, the appropriateness of the advice for your client should be considered, having regard to those factors. Before deciding to acquire or to continue to hold life insurance issued by TAL, advisers and their clients should consider the relevant Product Disclosure Statement available at www.tal.com.au and www.asteronlife.com.au. The Target Market Determinations for the relevant products are also available at these web addresses.  

Life Insurance issued by TAL Life Limited ABN 70 050 109 450 AFSL 237 848 (TAL).