ABML Regulatory Update: 5 May 2021
Protections for unfair contract terms will apply to consumer and small business insurance contracts from 5 April 2021, and to terms in existing contracts that are varied from 5 April 2021. Insurers should review their consumer and small business loan contracts to ensure they comply with the new regime.
Under both the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (ASIC Act), a term is unfair if:
it causes a significant imbalance in the parties’ rights and obligations under the contract;
it is not reasonably necessary to protect the legitimate interests of the advantaged party; and
it would cause significant financial or non financial difficulties to a party if applied.
Unfair terms can include any term which:
gives sole or unlimited power to the insurer to unilaterally change something in the terms;
makes it difficult for an insured person to make a valid complaint; or
forces an insured person to follow impossible preconditions.
Unfair terms may be declared void by a court or tribunal resulting in significant consequences. For example, money paid under a void term will have to be refunded.
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