Consumer insurance law

Policy Brief

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Insurance Law is an unreformed area of law adversely affecting consumers. Current law dates back to the Marine Insurance Act of 1906 and has not kept pace and modernised in line with the evolution of the consumer movement.

Consumer Insurance Law is based on the same principles of absolute faith found in the 1906 Marine Insurance Act, where a consumer has to make known all possible information the insurer might want in assessing a potential claim. These contracts are often long term and in the case of health insurance, requirements are particularly onerous for consumers. 

The Law Commission has drafted a Bill called The Consumer Insurance (Disclosure and Representation) Bill. This deals with the pre-contractual period only.  It abandons the principle of absolute faith and requires the Insurer to ask all pertinent questions.  TSI believes this is a much fairer and more transparent approach to consumer insurance.

TSI believes that this Bill should become law. It will greatly improve consumer protection is this area and place consumer insurance law on a modern appropriate footing. Consumer Focus and Which support TSI in this cause. We see bringing more clarity to the law in this area a significant benefit for consumers.

One of the cases cited by the Law Commission involved an insurance company that rejected a claim for a stolen car because the policyholder had not informed the company of a speeding conviction.

The arguments

Overlapping layers of law, Financial Ombudsman ‘best practice’ guidelines, and voluntary codes of practice established by the Association of British Insurers has resulted in a confusing and convoluted arena in which consumers find themselves. In the event that a consumer needs to make a claim, less reputable insurance companies can avoid paying reasonable claims by following the strict letter of the law.

Current law allows Insurance Companies to void any claim where the consumer has withheld information, even though that information may not have been asked for, whether or not apparent that it was relevant. This applies regardless of the consumer acting honestly and innocently so they are treated the same as someone fraudulently withholding information. The Financial Ombudsman Service has said that the strict legal position of most insurance contracts is manifestly unfair to consumers.

Life and health insurance policies are not the only ones affected, problems occur with travel, house and motor claims.

There are industry codes of practice that ensure a fairer outcome for the consumer, be these remain voluntary and only cover certain types of policy.

Our Aim: To pursue implementation of the Law Commissions’ proposals to reform consumer insurance law.

To achieve amendment to the law either through House of Lords specialist legislative procedure for Law Commission Bills or inclusion in the legislative programme for the 5th Parliamentary Session.

What we are doing

Continuing to press the case for reform with the political parties including possibilities for implementing the draft Bill through adjournment debate or Private Member’s Bill.

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