Insurers banned from unfairly rejecting claims

Unfair tactics by home and car insurers who rejected claims because customers had unwittingly failed to declare relevant information about their policies are banned from April 6, 2013.

The new Consumer Insurance Act stops insurance companies from avoiding a pay out by claiming customers had failed to disclose details that they did not realise would affect their cover.Instead, insurers must ask any questions they consider relevant when a customer applies for cover – and if they then find their records are not complete because they did not ask for the right information, the policy must still pay out.

The Consumer Insurance Act will:

  • Insurers must ask relevant questions about any specific information required to issue cover at the point of sale
  • Must offer customers legal protection to ensure claims are not rejected for failing to disclose information unless the customer deliberately lied in their application
  • Applies to all personal insurance – including motors, home and travel policies
  • Applies regardless of how the policy was sold – for instance online or over-the-counter

“We want customers to take out insurance policies with the confidence that they are covered. By placing a legal duty on insurers to ask customers all relevant questions at point of sale, people will know exactly what they need to disclose upfront,” said the Association of British Insurers, the trade body for personal insurance companies.

“This act reflects steps taken by the industry over the years to improve customer awareness of what they need to tell their insurer. For example, the ABI Code of Practice for life, critical illness and income protection insurance, which helped reduce the number of claims declined for non-disclosure.”

A trial disclosure guarantee starting in 2008 and covering critical illness insurance saw the number of claims rejected for non-disclosure drop from 8% to 2% in just two years.

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