Communicating detrimental changes to private health insurance products
How should private health insurers communicate detrimental changes to policy holders and insured persons?
Private health insurance is one of the ACCC’s compliance and enforcement priority areas in 2016.
One observation arising out of the most recent Private Health Insurance Report from the ACCC related to the practice of private health insurers communicating detrimental changes to policy holders and insured persons.
Private health insurers typically have the ability under their fund rules to unilaterally change the terms of their private health insurance products. The private health insurance regulatory framework contemplates private health insurers making unilateral changes to their products. The key requirement is that an insurer must ensure that each adult insured under a policy in the affected product is informed about the proposed change a “reasonable time” before the change takes effect if the proposed change is, or might be, detrimental to the interests of an insured person.
The voluntary Private Health Insurance Code of Conduct provides some additional guidance around that obligation, classifying detrimental changes into “significant detrimental changes” and “other detrimental changes” and providing guidance regarding what comprises a “reasonable time” in each case. Guidance from the Private Health Insurance Ombudsman (since merged with the Commonwealth Ombudsman) is broadly consistent with the Code of Conduct.
So far, so simple? Well, perhaps not. As the ACCC put it in the recent Private Health Insurance Report:
“Under the ACL [Australian Consumer Law], provisions that allow such unilateral variations may constitute unfair contract terms (subject to a number of exemptions), particularly if the term is not transparent and causes consumer detriment.”
Unfair contract terms is something we are focussing on at Maddocks across a range of consumer-facing businesses. Under the Australian Consumer Law, terms in standard form consumer contracts which are “unfair” are void. Terms which permit one party (but not the other) to vary the terms of the contract are an example of terms that may be “unfair” within the meaning of the Australian Consumer Law.
Does that mean that fund rules which permit private health insurers to unilaterally change the terms of their private health insurance product are “unfair” and void under the Australian Consumer Law? In short, this is theoretically quite possible. Transparency and giving insured persons adequate notice and meaningful options to avoid detriment (say, options to upgrade their cover) are critical.
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