Under the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth) a court can declare unfair terms within standard form contracts for consumer goods and services and financial products or services void. For more information about unfair contract terms in consumer contracts, see Unfair Contract Terms.

From 5 April 2021, general and life insurance contracts are subject to the unfair contract terms provisions of the ASIC Act. This is under certain amendments to Section 15(2) of the Insurance Contracts Act 1984 (Cth). Health insurance, compulsory third party and workers compensation policies are not included.

An unfair contract term is one that:

A court may declare a contract term void, and the contract will continue to bind the parties as long is it capable of operating without the term. The provisions apply to standard form contracts where the consumer does not have the ability to negotiate the terms. An insurance policy is a typical example of a standard form contract.

The provisions do not cover all types of insurance contracts. For example, the provisions do not cover private health insurance, compulsory third party schemes and workers compensation. Contracts entered into before 5 April 2021 are also excluded.

Some terms are exempt, including the subject matter of the contract and the price paid. In an insurance contract, the subject matter is limited to a description of what is being insured.

Both insured persons and third party beneficiaries can challenge an unfair term. A third party beneficiary is the person named in a life insurance contract.

At present there is no penalty for including an unfair contract term in a standard form contract.

What can a consumer do if they think a contract term is unfair?

A consumer can complain to the insurance company.  The insurance company must deal with the complaint under its dispute resolution process.

If a complaint is not resolved, the consumer can lodge a dispute the Australian Financial Complaints Authority (AFCA). More detail about complaining to AFCA can be found under Complaints. Another option is to take the matter to court to ask for a declaration that the term is unfair. Going to court is expensive, and it is best to get legal advice first.

The Australian Securities and Investments Commission (ASIC) regulates the conduct of insurance companies. An individual can complain about misconduct to ASIC by using the form on the website. However, ASIC cannot assist individuals to resolve the dispute and does not have the power to declare a contract term to be unfair.

Examples of potentially unfair contract terms in insurance contracts: