Life insurers lack common ground on duty to disclose

Col Fullagar

19 January 2026

Advisers might be forgiven for reminiscing about the good old days when the Duty of Disclosure ruled the application process.

Yes, there were complications surrounding that testy Reasonable Person and the fact that the Duty might extend beyond the actual questions asked in the application form, but at least years of legal precedent and process documentation brought with them clarity and certainty when it came to what was required of the adviser. By way of example, if there was a material change in the circumstances of the applicant between when the application was completed and the policy was entered into, the adviser knew the applicant was required to pro-actively tell the insurance company with the triggering words within Section 21 of the Insurance Contracts Act (1984) (“ICA”) being “Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured being a matter that …….. “

 If not aware of this requirement previously, many an adviser and their client became aware when a claim was lodged a month, a year or a decade later if whilst undertaking its due diligent fishing expedition, the insurer came across something it reasonably or otherwise believed should have been disclosed at the time of application. A Show Cause letter would be sent as the insurer sought to activate the various remedies accorded it under the ICA. Then came the debate about the relevance and import of the matters not disclosed.

Notwithstanding it was tough love, as before, at least there was not only clarity and certainty but crucially there was consistency across the life insurance industry.

Then in February 2019 it all started to change. The Financial Services Royal Commission came to the conclusion that the Duty of Disclosure did not recognise the gap in knowledge between what an insurer knows is relevant to the assessment of an insurance risk and what a consumer knows is relevant or, to put it another way, the concern was the responsibility was on the consumer to assess relevance which required them to think like an insurance underwriter. Now there’s a challenge !!

The Commission recommended, and the Government took up the recommendation, that the Duty of Disclosure be replaced with a Duty to Take Reasonable Care Not to Make a Misrepresentation. This new Duty placed the burden on the insurer to ask questions in such a way as to elicit the information it needed to make the relevant assessment; the consumer was no longer required to “guess” what was relevant.

The Duty to Take Reasonable Care resided at Section 20b of the ICA, and it came into effect on or around October 2021. For practical purposes it replaced the Duty of Disclosure when application for life insurance was made.

In a similar way to the Duty of Disclosure, the Duty to Take Reasonable Care continued until the policy started ie “Subject to this Act, an 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.”

 However, whilst the Duty of Disclosure required of the applicant that she or he had proactively “disclose”, under the Duty to Take Reasonable Care, the duty was “not to make a misrepresentation” which arguably might be seen as a reactive duty ie the applicant had a duty not to make a misrepresentation in response to a question asked. Did this represent a symbolic handing of the burden baton in part back to the insurer in so far that if the insurer did not ask, the applicant did not have to tell.

The counter position is that notwithstanding the applicant made disclosures in line with their Duty when the application was completed, if there was a material change prior to the policy starting, the applicant was required to “correct” those disclosures in so far that they were now no longer in line with the Duty?

Before considering the above further, it is worth pondering whether this matter is of sufficient import to warrant an article in Financial Newswire.

Consider thus ……..

An applicant comes to their financial adviser and tells them that subsequent to completing their insurance application the other day, they have had a mild heart attack. The adviser trained in the ways of the Duty of Disclosure, says to the client that the insurer has to be advised. This action is undertaken and the insurer duly declines the application for insurance.

Several days later, said client is at a BBQ speaking to their solicitor mate who is adamant that disclosure is only required in response to a question asked. As such, the direction by the adviser was deemed incorrect and litigation is suggested.

A second adviser is confronted with an equivalent situation except on this occasion the client has had a minor depressive episode arising out of a death in the family. Having heard of the experience of the first adviser, the advice on this occasion is that the insurer does not need to be told unless relevant questions are asked prior to the policy starting.

No questions are asked and the policy is put into force. All is beer and skittles until a few months later the second client is badly injured in a motor vehicle accident. A claim is lodged. The insurer finds out about the depressive episode and represents that, had it been aware, it would not have accepted the application for insurance. The claim is denied, the policy is cancelled from inception, and the client commences proceedings against the adviser.

Now, of course, one might debate the detail of the above examples but to do that is to miss the point ……. it is crucial that all parties, the client, the adviser and the insurer are clear on what is required when there is a material change in the client’s circumstance between when the application is completed and the policy starts. Having said that, however, it is not the purpose of this article to say what should or should not occur in this situation with the reason being that this will require legal and possibly judicial input and, as such, it is well beyond the scope of the writer.

“Pull the other one !! What then is the purpose of this article?”

Towards the end of 2025, an email was sent to each of the eight mainstream retail risk insurers. In part it read:

“With the Duty of Disclosure, if there was a material change in the circumstances of the intending insured between when the application was completed and the policy entered into, proactive disclosure of same to the insurer was required. The question being asked is whether, under the Duty to Take Reasonable Care the equivalent proactive disclosure is required or is further disclosure only required if the insurer asks further questions eg if there is a delay subsequent to the date of application and the insurer asked for a response to a Declaration of Good Health.”

To facilitate meaningful responses, insurers were assured their answers would be considered to be “indicative, non-legal and non-binding.” The reason for this was because arguably, whether or not disclosure is required was not the purpose of the exercise, the purpose was to find out if there was a consistent approach being taken in the market.

Imagine, if you will, the dilemma of an adviser; an application is lodged for one client with insurer A and an application is lodged for another client with insurer B. A few days later, both clients advise there has been a material change in their circumstances, and they ask the adviser whether they need to let the insurance company know. If the two insurers have a different approach to this matter under the Duty to Take Reasonable Care, in effect the adviser has to identify this and then advise each client differently.

Now take the above and extend it to each of the eight mainstream retail insurers, and beyond ….. if the world of the risk insurance adviser was not problematic enough.

So, what was the response to the question?

To drag out the suspense for a few more moments, the writer would like to sincerely thank each of the insurers contacted for the considered and comprehensive way in which they responded to the question; with only one “kicking for touch” by way of “I wouldn’t be able to confirm the position as it will depend on a range of factors and the specific circumstances.”

Having said that, there was a somewhat unexpected side issue in that the nature of the responses from the insurers made it clear that in large part they were unaware of the position of their counterparts.

So, what was revealed by the responses:

• Four insurers expected the applicant to proactively advise if there was a material change in their circumstances prior to the policy being entered into.
• Three insurers only expected the applicant to advise of a material change in response to additional questions being asked prior to the policy being entered into eg if a Declaration of Good Health was requested either as a result of a delay in application completion or as part of an exclusion counteroffer.
• As above, one would not commit.

Indicative hands thrown up in horror !!! Surely, things could not get worse. Well actually they could …… and don’t call me Shirley (Fans of Leslie Nielsen will get it).

You see, whilst the mainstream insurers were approached, the five reinsurers were not. Imagine, if you will, the chaos of a reinsured policy where the position of the insurer and reinsurer differed.

And in case you are hoping the problem may not arise for a while, please be advised the writer is aware of two cases already which are caught up in the scenario described and, yes, one of the two is for a benefit amount that will bring a reinsurer into the fray.

Clearly, the current position is unsatisfactory, again for all parties. A way forward has to be found and arguably it has to be found sooner rather than later. The first requirement for a solution is of course to identify and make known the problem. The main purpose of this article has been to do that.

Further, whilst a solution will eventually be found, as intimated above, that will likely require legal and possibly judicial input, for example by way of a legal challenge and Court ruling. The concern is what, if anything, can be done to bridge the gap between now and then. The further concern is to ensure that whatever is done, is done universally and consistently recognising that a solution only partially implemented becomes yet another problem.

The suggestion is that if there are different approaches out there, which is apparently the case, an interim solution is that each insurer makes its position known in such a way that advisers and their clients at least know where they stand with that particular insurer. Crucially, this would require the reinsurer for that insurer to hold a consistent position.

How the above might be implemented would be open to discussion but again one suggestion is that the insurer’s position be included in appropriately large print on their application form, for example, as part of the detailing of what is required of the client in regard to disclosure.

The catch is, of course, how to have an appropriate interim solution agreed to and implemented.

It is suggested that only one group has the understanding and leverage to move this matter forward. That group is not the insurers as this would require them to act in a co-ordinated way; nor is it a regulator as it would require a pragmatic outcome. No, in the writer’s miserable opinion the only group with the necessary common sense, empathy and crucially sufficient leverage to move this matter forward in a reasonable way to ensure a safe and consistent outcome is one or a group of financial services licensees.

Let the call go out because in the meantime, risk insurance advice just got even more challenging so please, take reasonable care ………….

Col Fullagar is the Principal of Integrity Resolutions