There is a fair conduct principle in the draft new conduct law. 

The challenge is that this is principles-based law, and fairness is not defined. Each company, if they were operating under the draft law, would have to define a conduct programme – without a requirement for a standard set of principles we are immediately setting ourselves up to have a different definition of fair conduct from each product provider.

Sure, these must each be approved by the FMA who will issue conduct licences under the law, but they will not be the sole arbiters of what is considered fair, because these are not regulations – this is law.

Fairness, undefined, could mean different things to different people.

The first risk is that providers treat the concept differently – some more loosely than others. I’m all for healthy competition – it helps to keep prices down and innovation coming along – but competition in minimum standards could be scary.

What if one company decides fairness is at one level while another sets the bar higher? Lower costs at one could confer a substantial advantage, penalising the fairer player. It may take years before this difference is challenged.

Individuals could take the standard to apply in different ways.

Several people I know that have reviewed the draft law believe that it envisages an individual approach to fairness. That presents a challenge to insurers that have to deal with groups of people pooling risks.

Products are designed to be fair to the group, on average, not to each specific individual. We already see this when consumer advocates complain that one policyholder did not get their money back after having paid into an insurance contract for years – their premiums, of course, helped to pay for claims to other people.

It was the pooling of risks that made it possible for all of the policyholders to take larger financial risks than they would be capable of on their own. But it could be challenged as ‘unfair’ by some advocates.

Insurance underwriting is frequently challenged as ‘unfair’ because higher risks attract higher prices. 

Some risks cannot be taken – they are more of a certainty, usually, a certain loss.  Again, advocates for some groups that are not insurable, regularly call for them to be insured – even though this may make products non-viable for the majority of consumers.

These are extreme examples, of course. They are not reasons for abandoning conduct law – but for providing more clear guidance on what is fair.

These are principles such as honesty, clarity, and protection for the vulnerable. They are still principles, not prescriptions, but I think they are more easily understood.