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Electronic Communication of Insurance Policies

Whether the Financial Services Provider (FSP) has notified the consumer of the policy provisions.

Issue

The Financial Ombudsman Service (FOS) is dealing with an increasing number of disputes involving FSPs relying on electronic transmission to provide insurance policies to consumers.  Electronic transmission is either via the internet or email.

This is particularly prevalent in relation to travel insurance policies, but also occurs in relation to other types of policies.

This raises an issue of whether consumers have been notified of the policy provisions, as required under legislation.

Insurance Contracts Act 1984 (ICA)

ICA provisions relevant to the issue described above are listed below with notes.

  • Section 35 - To meet requirements under section 35, an FSP may need to prove that it clearly informed a consumer in writing of provisions of a contract before the contract was entered into.  An FSP generally informs a consumer of provisions of a contract by giving the consumer a copy of the policy document that incorporates the provisions.
  • Section 69 - Where the ICA provides for information to be given in writing before the date when a contract was entered into (as in section 35), section 69 allows the information to be given in writing within 14 days after that date in certain circumstances.
  • Section 77 - This provision sets out how notices or other documents, which are required or permitted to be given under the ICA, may be given. Section 77 only allows documents to be given to a natural person either personally or by post to that person at their last known address.

Subsection 35(1) requires a minimum amount of cover to be provided by insurers for prescribed policies including motor vehicle, home building, home contents, sickness and accident, consumer credit and travel policies. The prescribed minimum amount of cover for each prescribed policy is set out in the Insurance Contracts Regulations 1985.

Subsection 35(2) states that subsection 35(1) does not have effect if the insurer proves specified matters.  So that it can rely on subsection 35(2), an FSP may seek to prove that, before a contract was entered into:

  • the FSP clearly informed the consumer in writing or
  • the consumer knew, or a reasonable person in the circumstances could be expected to have known that
  • the contract provides cover for less than the minimum amount and what the amount is or
  • the contract provides no cover for a ‘prescribed event’.

To prove one of the matters specified in subsection 35(2), the FSP may need to establish it clearly informed the consumer of the terms of the cover provided. Issue 3 of our Circular outlines the minimum information we expect when an FSP is required to prove dispatch of documents.

Where an FSP has not provided sufficient information to establish, on the balance of probabilities, that the policy documentation was given to the consumer prior to a loss, we will conclude that the FSP has not proved that matter.  In cases where subsection 35(1) has effect, the consumer is entitled to the prescribed minimum amount of cover.

Generally, an FSP can clearly inform a consumer by merely providing them with a policy document.  There are circumstances where the mere provision of a policy document is not sufficient, however.  One example is where the document does not plainly indicate that the policy contains a significant limit to cover.

Proposed legislative amendments

Section 9 of the Electronic Transactions Act 1999 provides that, if a Commonwealth law requires or permits information to be given in writing, it may be given by electronic means if certain requirements are met.  However, section 9 does not apply to the ICA.

The Insurance Contracts Amendment Bill 2010 includes amendments that would cause section 9 and other provisions of the Electronic Transactions Act to apply to the ICA.  This Bill has not been passed, however.  This means that the ability of FSPs to utilise electronic communication with consumers remains restricted.

Our decision making

When we decide a dispute and whether a remedy should be provided, we are obliged to do what in our opinion is fair in all the circumstances, having regard to:

  • legal principles
  • applicable industry codes or guidance as to practice
  • good industry practice, and
  • previous relevant decisions of FOS or one of our predecessors (although they are not binding).

Where an FSP relies on electronic communication

We consider disputes relating to insurance offered over the internet.  These disputes may hinge on whether the FSP proves that it clearly informed the consumer of policy provisions, or that the consumer knew of those provisions.
To meet our obligation to do what is fair when making decisions about these disputes, we consider all of the circumstances of the disputes.  For example, we consider matters such as:

  • how the insurance was arranged
  • whether the consumer ‘ticked all the boxes’ on the FSP’s website in response to the FSP’s questions or directions
  • where the FSP sent the consumer information electronically, whether the FSP informed the consumer that it had done so
  • whether the consumer asked to receive documentation electronically, and
  • whether the consumer received a copy of the policy, either by email or by printing a copy.

We note that consumers are obliged to read a policy when they receive it and ascertain whether the cover is right for them.

As explained above, the ICA still provides for documents be given to a natural person by being handed to them or by post.  Issue 3 of our Circular provides guidance for FSPs seeking to prove that they gave consumers documents in one of these ways.

Electronic communication is not straight forward. The requirements for proof in a particular case will often be determined by its facts and circumstances.  We will generally conclude that an FSP does not, simply by putting information on its website, convey the information to a consumer unless there is a clear indication that the consumer received the information.