The onus will be on insurers to ask the right questions when it comes to people applying for new insurance, under proposed changes by the Government.

Currently, it is up to consumers to disclose everything they think is relevant when they take out a new policy and some find themselves caught out when it comes to claim time.

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Commerce and consumer affairs minister Kris Faafoi said the current law was outdated and many insurance policies were complex and difficult to follow.

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"This means consumers can be buying insurance products they don't understand, which can be poorly suited to their needs, and can leave them in the dark about what they should disclose to their insurer."

Last year, the Government launched a review of the insurance contract law and has now come up with a raft of changes.

These include:

• Placing the responsibility on insurers to ask consumers the right questions when processing new insurance policies, rather than leaving it to consumers to know what to tell their insurer.

• Requiring insurance policies to be written and presented clearly, so that consumers can easily understand them.

• Ensuring insurers respond proportionately when consumers don't disclose something they should have, or misrepresent themselves.

• Strengthening protections for consumers against unfair terms in insurance contracts.

• Extending powers to the Financial Markets Authority to monitor and enforce compliance with new requirements.

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There will be further public consultation on the changes next year before they come into effect.

The proposed changes have been welcomed by the insurance industry body.

Tim Grafton, chief executive of the Insurance Council of New Zealand, said the current legislation was outdated and needed to be consolidated into a single piece of law.

"This is a highly technical area and we support the Minister's decision to consult on a draft piece of legislation, a process that we will engage in constructively.

"Consultation will allow us to ensure the strengthened consumer protections in insurance contracts provide clarity and certainty for all parties," he said.

Grafton said the for the past four years its fair insurance code had required members to respond proportionately when consumers don't disclose something they should have.

"Also under our code, we require our members to set out their insurance policies in plain English which the whole sector should be striving to do."

Grafton said putting the onus on insurers to ask the right questions of consumers to underwrite a risk reflects the fact they have the ability to ask the right questions.