An insurance policy is a legally binding contract between an insurance company and an insurance consumer, which places a number of strict obligations on both parties.


General insurance industry is governed by a number of different statutes, such as

  • Insurance Contracts Act 1984 (ICA)
  • Insurance Act 1973
  • Corporations Act 2001

The primary regulatory bodies of the general insurance industry are the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). The role of APRA is regulation promoting  prudent behaviour by insurance companies and other financial institutions with the principal goal of protecting the interests of their depositors, policy holders and fund members. ASIC is responsible for licensing financial services providers, including insurance companies and protecting consumers in the financial services industry.

Insurance companies are bound by various other laws and regulations, such as Australia’s privacy laws to protect the confidentiality of information they obtain.

The General Insurance Code of Practice is a voluntary Code protecting the rights of policyholders. The compliance of the insurance companies with the Code is monitored by the Australian Financial Complaints Authority’s Code Compliance and Monitoring team, which has a separate role to help resolve disagreements between insurers and policyholders.

Insurers that sign up to the Code undertake a promise to act in an open, honest and fair manner in dealing with consumers. Every member of the Insurance Council of Australia is a signatory to the Code. Insurance brokers have a separate Code of Practice.


The Insurance Contracts Act 1984 (Cth) writes into every insurance contract a statutory obligation on both parties to act with the utmost good faith [s 13]. Usually, the duty is described as requiring the insurer and the insured to act honestly with each other from the pre-contractual stage (duty of disclosure) to the post-contractual stage (the making and handling of claims).

Moreover, as a duty of utmost good faith is a contractual term, damages can be awarded to the innocent party in case of a breach. Note that knowledge is a crucial element to a claim based on breach of duty of a good faith. A mere mistake or negligence will not warrant the breach. The phrase ‘good faith’ implies some sort of intention.


Based on the duty of Utmost Good faith:

Pre-contractual obligations

  1. The insurer must disclose any relevant policy terms that have major consequences (such as denial of claims) and must not misrepresent facts about the policy (or any other facts) that are relevant to the policy.
  2. The insurer must ask the insured specific questions relevant to the risk. Failure to do so waives the insurer’s ability to claim that the insured failed to disclose the relevant facts (s 21A(3) ICA).
  3. The insurer must inform the insured in writing about the insured’s duty of disclosure and the effect of non-disclosure (s 22 ICA).
  4. Insurance companies have to conduct their sales processes in a fair, honest and transparent manner.

Obligations in drafting a policy

  1. The insurer must draft its policies in clear, plain English so that the policy can be easily understood by the insured.
  2. The insurer must bring to the insured’s attention any unusual terms of the policy (s 37 ICA)

Post-contractual obligations

  1. The insurer must manage, administer and process claims efficiently and without undue delay;
  2. The insurer can only decline claims with reasonable evidence or belief that the claim should be declined;
  3. The insurer must investigate the claim in a reasonable manner before declining a claim;
  4. The insurer must not use inappropriate reasons to deny a claim (such as a minor misrepresentation which did not impact on the event causing the claim – manifested as s14 of the ICA).

Duties based on laws on privacy

  1. Your insurance company must only ask you for personal information that is relevant to the application.
  2. The insurance company must keep all of the information that you provide confidential, and in a secure place. The company must also not use that information for anything else except to assess your application for an insurance policy.


  1. Arising from the duty of utmost good faith an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that the insured knows (or ought reasonably know) to be relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.
  2. An insured is expected to read his or her policy carefully before entering into an insurance contract so that he or she understands what is covered and what is not covered under the policy. Insurance companies provide consumers with a Product Disclosure Statement (PDS) for each policy which clearly explains what each policy will and won’t cover.
  3. When purchasing an insurance policy, an insured is obliged to pay for that policy. If a policyholder falls behind in his or her payments under the insurance policy, the policy may lapse rendering the insurer not liable for any claims under the lapsed insurance policy.
  4. On making a claim an insured has a duty to cooperate reasonably with the insurer in its assessment of claim value and investigation of claim indemnity.


In case you are not happy about your insurer’s decision or conduct, your insurer will tell you about how you can make a formal complaint to your insurer’s internal dispute resolution department. Other dispute resolution options include a complaint to the Australian Financial Complaints Authority or litigation. Any of these must be considered carefully.

This is general information only.  Please contact us for advice, specific to your needs.