New Consumer Duty under Insurance Contracts Act 1984 commencing 5 October 2021

30 September 2021

One of the many recommendations of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was the amendment of the insured’s duty of disclosure under the Insurance Contracts Act 1984 (ICA). Recommendation 4.5 of Commissioner Hayne’s final report of February 2019 was for the introduction of a new consumer duty to take reasonable care to not make a misrepresentation when entering into a consumer insurance contract.

New Consumer Duty – section 20B

On 5 October 2021, that new consumer duty will take effect. The duty replaces the previous duty of disclosure in relation to “consumer insurance contracts”.

“Consumer insurance contracts” is defined to include those that are wholly and predominantly obtained for the insured’s personal, domestic or household purposes (Section 11AB).

All other insurance contracts (i.e. commercial insureds) will remain subject to the “traditional” duty of disclosure under section 21 of the ICA (which remains in the Act).

Under the new section 20B of the ICA, a consumer insured has a duty to take reasonable care not to make a misrepresentation to the insurer before the relevant contract of insurance is entered into.

That section provides that when determining whether an insured has taken “reasonable care”, it is necessary to take into account:

  1. Any particular characteristics or circumstances of the insured of which the insurer was, or ought to have been, aware; and
  2. All other relevant circumstances.

Particular Characteristics or Circumstances of the Insured

If the insurer knew or ought to have known about particular characteristics or circumstances of the insured individual, then the characteristics or circumstances must be taken into account when determining whether the insured has taken reasonable care not to make a misrepresentation to the insurer.

The explanatory memorandum to the amending Bill provides a number of examples, including where an insured has Alzheimer’s Disease or poor eyesight, and the insurer knew or ought to have known of that condition. That characteristic would then lower the standard of care required on the insured’s behalf to discharge their duty.

All other circumstances

In relation to the other relevant circumstances, section 20B(3) provides that, without limiting the range of circumstances, consideration may be given to:

  1. The type of consumer insurance contract in question, and its target market;
  2. Explanatory material or publicity produced or authorised by the insurer;
  3. How clear, and how specific, any questions asked by the insurer of the insured were;
  4. How clearly the insurer communicated to the insured the importance of answering those questions and the possible consequences of failing to do so;
  5. Whether or not an agent was acting for the insured;
  6. Whether the contract was a new contract or was being renewed, extended, varied or reinstated.

Under Section 20B(5), there is no breach of the duty by the insured for failing to answer a question or giving an obviously incomplete or irrelevant answer to a question.


Section 27AA provides remedies to an insurer for a “relevant failure”, which is a misrepresentation made by the insured in breach of the duty to take reasonable care to not make a misrepresentation.

The “old” remedies for general insurance under Section 28 of the Insurance Contracts Act still apply such that:

  1. If the relevant failure was fraudulent, the insurer may avoid the contract;
  2. If the insurer is not entitled to avoid the contract, then the liability of the insurer in respect of the claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the relevant failure had not occurred.

Implications for you

The new consumer duty under the ICA puts the onus squarely on insurers to identify the relevant information they need to assess a risk.

Insurers will have to ask specific questions of their consumer insureds and will no longer be able to rely on the insured providing it with relevant information. It will be necessary for insurers to ensure that all questions asked of the insured, on inception and renewal, are clear and unambiguous. In addition, the potential consequences of any misrepresentation should be clearly explained to the insured.

Record keeping will continue to be critical in regards to the communications between the insured and insurer at policy inception stage. All policy documents, sales and underwriting documents and scripts must be updated and be coherent and consistent.

The new duty to take reasonable care invokes the language of negligence. It will not be sufficient for an insurer to prove that a representation made by the insured was factually inaccurate. The insurer will need to prove that the misrepresentation was a result of the insured’s failure to exercise reasonable care when answering the insurer’s questions.

As such, if an insured was reckless or had disregard for the truth, is careless or negligent then that is likely to constitute a failure to take reasonable care. However, if an insured gives an answer that they think is correct and it later turns out to be wrong or inaccurate, then that is not of itself a breach of the duty.

The new sections commence on 5 October 2021, so watch this space.

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