On 16 May 2011 the Government introduced the Consumer Insurance (Disclosure and Representations) Bill to the House of Lords for its first reading. The Bill will change the law governing the information that consumers must provide when they purchase insurance policies, and the remedies available to both consumers and insurers should the consumers get that information wrong. This change in law is the first substantial change of statutory insurance law since the Marine Insurance Act of 1906.
The Bill, which is part of a wider reform of insurance law, stems from the recommendations made by the Scottish Law Commission and the Law Commission in its Report, 'Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation,' which was produced in December 2009. The Law Commission has indicated that it will publish a second consultation paper, which will consider business insurance law and other issues later this year.
The main recommendation under the new Bill is the replacement of the consumer's duty of disclosure to a new duty for the consumer to take 'reasonable care to answer the insurer's questions fully and accurately'. Accordingly, a consumer is no longer under the onerous obligation to provide everything that a 'prudent insurer' would consider to be relevant - a hard task for a consumer with no experience of the insurance industry - and instead must answer correctly specific questions which relate to the insurance being purchased. The Bill states that, in the event that the consumer answers these questions dishonestly or recklessly, then the insurer can rescind the policy and revoke cover and pay back the premium.
However, if the consumer has been merely 'careless' in answering the questions, the insurer must consider what it would have done had it had all of the relevant information at the time of issuing the policy and, if cover would still have been provided albeit for a higher premium, the insurer should honour the policy and indemnify the consumer taking into consideration the higher premium which should have been paid.
The Bill has been well received by both consumer groups and insurers. Indeed, many insurers have been acting in accordance with the proposed Bill as a matter of good practice. The Bill, if it is accepted by Parliament, will ultimately provide protection for consumers by bringing greater transparency and certainty to the industry. Those insurers who do not currently adopt this practice should move towards adopting it now so as to ensure that they are ready, as it seems highly likely, given its popularity, that the Bill will be enacted in due course.
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