Insurance Law Reforms

26 May 2011

The current laws on insurance contracts are archaic and onerous, and can frequently result in consumers discovering that they are not in fact covered by their policy as they failed to provide their insurer with all the facts when the policy was purchased.

Dating back to 1906 and based on eighteenth and nineteenth century principals, the relevant law as it stands imposes a duty on the consumer to tell insurers anything which would “influence the judgment of a prudent insurer” in calculating premiums or deciding whether to accept the risk. The onus is on the consumer to fully appreciate what might influence a prudent insurer, an expectation which is both harsh and unrealistic. If material information is not disclosed, the policy can be treated by the insurer as if it never existed, and all claims refused. This is so even if the consumer acted honestly and reasonably, and even if the insurer would have provided cover had the full information been provided.

The new proposals, if implemented, will remove the consumer’s duty to volunteer material facts, and will shift the onus on to the insurer to ask all pertinent questions. The consumer will have to answer the insurer’s questions fully and accurately, and they must take all reasonable care not to provide any misleading answers.

The proposed changes would also set out a series of rules called “proportionate remedies” which will assist insurers in deciding whether a claim is valid, and what the appropriate remedy should be. This will depend on whether any misrepresentation by the consumer was honest and reasonable, in which case the claim must be met in full by the insurer. If the misrepresentation was careless, the remedy will be based on what the insurer would have done had the consumer provided accurate information at the outset. If the misrepresentation was deliberate or reckless, the policy may be treated as if it never existed, and all claims declined.

The proposals mark a welcome shift in providing increased protection and fairness for consumers in a complex and confusing area of contract law, whilst also reducing costs and challenges for the insurance industry.

The proposals have so far received strong support. The Consumer Insurance (Disclosure and Representations) Bill was introduced in the House of Lords on 16 May 2011, and progress of the Bill can be followed on the Parliamentary website.