Changes to the Duty of Disclosure for retail insurance - Reasonable Duty Not to Make a Misrepresentation

  • TurkAlert
  • Published 18.02.2021

Key Takeaways 

With effect from 1 January 2021, the Insurance Contracts Act 1984 (Cth) (ICA) was amended by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth).  

Following Commissioner Hayne’s recommendation 4.5, the existing Duty of Disclosure under s21A and s21B of the ICA has been replaced with the duty on an insured ‘to take reasonable care not to make a misrepresentation’.

This new duty will only apply to retail insurance contracts (these include home, motor, travel, sickness & accident, consumer credit and personal & domestic property insurance). The existing duty of disclosure under s21 will continue to apply to wholesale insurance (anything that is not retail insurance).  

The new duty will apply for all retail insurance contracts issued, renewed or varied from 5 October 2021; however, insurers may adopt the new duty into their retail products before then if they choose.

New Duty 

The changes under the duty of disclosure are in Part IV of the ICA and include:

  • A new definition of a Consumer Insurance Contract has been inserted and s11AB defines this as a contract obtained wholly or predominantly for personal, domestic or household purposes – i.e. any retail contract. 
  • Sections 21A and s21B have been repealed and replaced with s20B, which sets out the ‘insured’s duty to take reasonable care not to make a misrepresentation’ and only applies to Consumer Insurance Contracts. 
  • Section 21 remains but it will only apply to contracts of insurance that are not Consumer Insurance Contracts – i.e. wholesale contracts. 
  • Whether or not a retail insured has taken reasonable care not to make a misrepresentation is to be determined by consideration of all the relevant circumstances as set out in the subsections of s20B, including: 
    • the type of Consumer Insurance Contract and its target market (as declared by an insurer’s Target Market Declaration under the new PDDO legislation, which also takes effect from the 5 October 2021);
    • explanatory material or publicity produced or authorised by the insurer; 
    • how clear, and how specific, any questions asked by the insurer were; 
    • how clearly the insurer communicated the importance of answering those questions and the possible consequences of failing to do so – for example, a notice bubble in an online purchase path; 
    • whether or not an agent was acting for an insured; 
    • whether the contract was a new contract or was being renewed, extended, varied or reinstated; and 
    • any particular characteristics or circumstances of the insured of which the insurer was aware, or ought reasonably to have been aware, in determining whether an insured has taken reasonable care not to make a misrepresentation – this is particularly important if a retail insured purchases a policy in person. 
  • Section 27AA has also been introduced and defines a Relevant Failure in relation to a Consumer Insurance Contract, being a breach by a retail insured of their duty to take reasonable care not to make a misrepresentation. 
  • Section 28 has been amended to refer to a Relevant Failure, while the remedies for pre-contractual misrepresentation by a retail or wholesale insured remain unaffected. 


The changes to the duty of disclosure will apply for all retail contracts of insurance entered into, renewed or varied on or after 5 October 2021. These retail contracts of insurance will need to be updated by insurers to reflect the new duty to take reasonable care not to make a misrepresentation, if they have not already been updated.  

How the new duty will play out in practice is yet to be seen, but it is clear that from 5 October 2021, if an insurer wishes to rely on a breach of the duty of disclosure in a retail contract of insurance, the focus will shift further to insurers. Insurers will have to establish:

  1.  that an insured made a misrepresentation regarding an issue on which they were asked a specific question at inception or renewal; and then
  2.  that the misrepresentation was made as a result of a failure by the insured to take reasonable care when giving that reply. 

A key issue that will remain under the new duty is the need for insurers to clearly inform their retail customers of the new duty and to maintain records of this process, whether online or in person.

This is a great opportunity for insurers to review and consider the clarity of disclosure questions, notices and purchase path journeys, both in person and online, throughout their retail distribution lines and partners. 

Paul Angus


P: 02 8257 5780

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