Victory for Consumers is One Step Closer in Campaign for Law Reform
The archaic insurance law leaving consumers vulnerable at their hour of need could finally be reformed as Scottish and English Law Commissions publish a report recommending new legislation with widespread support.
The Trading Standards Institute (TSI) has been campaigning for a change in consumer insurance law since May 2009 when the issues around it where highlighted at the organisation’s All Party Parliamentary Group meeting.
All insurance law is based on the Marine Insurance Act 1906 and as a commercial and old statute it is heavily biased against consumers. It allows insurers to refuse a claim if the policyholder failed to disclose any information when they signed up – even if the consumer answered all the questions that were asked honestly and reasonably, and the information is not relevant to the claim.
The case of a leukaemia sufferer whose claim was not paid because she had omitted to mention in her application form unrelated ear infections suffered in the past is a typical example of the law failing consumers – often at their biggest hour of need.
Given that this affects all consumer insurance policies and many people in the UK have at least one – whether it is for their homes, cars or holidays, or for health, critical illness or life – the potential extent of the impact of this bad law cannot be underestimated.
The Law Commissions propose the law, and the raft of voluntary codes of practice have sprung up over the years, to be clarified, putting the onus on the insurer to ask the right questions rather than consumers being expected to volunteer information about anything which a “prudent insurer” would consider relevant.
Another important change would see a distinction between mistakes on an insurance application form that are “honest and reasonable”, “careless” or “deliberate or reckless”. The recommendation is that the insurer should only be able to refuse the claim in the latter case.
A number of other partners have joined the campaign, including Which?, Consumer Focus and Macmillan Cancer Support, but there remained one stubborn obstacle – the Association of British Insurers (ABI).
They have been historically opposed to reform, standing by a position that sufficient consumer protection was achieved with a combination of Financial Services Authority regulations, the Financial Ombudsman Service and industry practice. They rejected the logical argument that enshrining voluntary practices into law would ensure fair treatment of all claims, while boosting confidence in the insurance industry.
They have now retracted their opposition, potentially paving the way for a long overdue victory for consumers.
It may now be possible for the reform to be progressed through the Law Commission’s fast track route for non-controversial Bills.
Peter Tyldesley, a lecturer in insurance law at the University of Manchester who has been instrumental in pushing the campaign forward, said: “Although this is a welcome step forward, it is disappointing that the Association of British Insurers has refrained from actively supporting the reform of what is clearly bad law.
“Consumers deserve legally-enforceable rights to fair treatment - they should not have to rely on the uncertain application of voluntary codes and the goodwill of insurers.”
David Sanders, TSI’s chairman, said: “The report from the Law Commissions is clear and fair – which is why the proposed changes received widespread support during consultation from not only consumer groups but also major insurers. It is good to see ABI also joining the fold and we trust they are now committed to the change.
“Indeed most insurers have nothing to fear from the proposed reform as the majority already adhere to the voluntary codes of fair practice – they will however gain from improved consumer confidence which proposed new legislation would be likely to generate.
“Insurance law at present is of some antiquity and based solely on commercial principles that have no regard for consumer protection. It thus lets consumers down and clearly needs amendment so that consumer claims are sure to be treated in an appropriate manner in the first place, relieving pressure on the Financial Ombudsman Service. We hope to see this draft Bill swiftly acted upon.”
Notes to Editors:
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