Unfair Contract Terms Law
The Unfair Contract Terms law (UCT) covers unfair terms in consumer contracts for financial products and services. It was recently updated to include insurance contracts for consumers and small businesses.
For an insurance contract, the unfair contract terms law will apply if the insurance contract is entered into or renewed on or after 5 April 2021, or a term in an existing contract is varied on or after 5 April 2021.
What’s unfair?
So what makes a contract term unfair? Well, only a court can determine whether a contract term is unfair and if it was transparent.
However, the Australian Securities & Investments Commission (ASIC) notes that a term in a “standard form (small business) contract”* is considered 'unfair' if it:
- Would cause a significant imbalance in the parties' rights and obligations arising under the contract
- Is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, or
- Would cause detriment (financial or otherwise) to a small business if it were to be applied or relied on.
Transparency is a key focus of the new regulations. A term is transparent if it is:
- Expressed in reasonable plain language
- Legible
- Presented clearly
- Readily available to any party affected by the term
What should customers do if they think their contract is unfair?
- A customer can complain to the financial services provider (Flex). Flex will deal with the complaint through its Internal Dispute Resolution process. You can find our process here: https://www.flexinsurance.com.au/resource/complaints-and-disputes/
- If the customer is unhappy with Flex’s response, the customer can escalate its dispute to AFCA for a free and independent review.
Please click here for the AFCA’s website for Complaint: https://www.afca.org.au/make-a-complaint - If that’s not successful, the customer can apply to a court for a declaration that the term is unfair. If they are successful, the term will be void.
What are Insurers doing?
As a result of the reforms, many insurers and underwriting agencies, including Flex Insurance, have proactively reviewed their contracts and identified terms and either removed, reworded or qualified them. Product Disclosure Statements (PDS) and Policy Wordings are being updated to simplify them and make them more transparent for customers.
It’s not just important that insurers are well aware of the details of the law but also insurance brokers and anyone dealing in insurance. As the National Insurance Brokers Association (NIBA) points out: “For insurance brokers acting on behalf of a client, this regime is another tool in a consumer’s arsenal to get their claim paid. Insurance brokers will need to have an understanding of how it operates in order to properly assist their clients when appropriate.”
For more information about the Unfair Contract Term reforms here are ASIC fact sheets that are useful to know more about the law:
*A 'standard form contract' is a contract that has been prepared by one party to the contract (the business offering the product or service) without negotiation between the parties.