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30 July 2019

Ombudsman supports extension of unfair contract terms to insurance

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has welcomed draft legislation that extends the unfair contract term regime to insurance contracts, but says much more should be done to improve protections for small businesses.

“Removing the current exemption for insurance contracts from the unfair contract term regime as recommended by Commissioner Hayne, is a logical step,” Ms Carnell says.

“However there’s room for significant improvements to the current unfair contract term legislation more broadly.

“While my office is able to resolve many contract disputes by using the unfair contract term provisions as a lever, on occasions when these negotiations fail, an SME is forced to seek a ruling through the courts.

“This is a very costly exercise for small businesses and larger companies have more resources to delay court proceedings until the SME either gives up or goes out of business.

“It’s for this reason, regulators should be given greater powers to both determine and deal with unfair contract term cases, both in the insurance space and other contracts that SMEs enter into.

“Unfair contract terms should be made illegal and penalties should apply to breaches.

“The legislation should also be extended to cover contracts up to $5 million.

“If and when this exemption for insurance contracts is removed from the unfair contract term regime, small businesses will still have to wait a further 18 months at least before it applies to contracts they enter into.

“In the meantime, we will continue to advocate for a change in how small businesses can challenge unfair contract terms outside the court system.

“At the end of the day, all changes to legislation or regulation that affect small businesses should aim to reduce red tape and level the playing field between small and large businesses.”