Landmark Consumer Law sees Insurance Companies Tight Lipped

A vital new law has silently sneaked on to the statute book but could trigger a massive change to the way insurance firms handle claims.

This huge step forward in consumer protection has slipped past  almost unnoticed and certainly unannounced by most of the insurance industry.

The Consumer Insurance (Disclosure and Representations) Act 2012 received Royal Assent on 8 March 2012 and is expected to become law within a year.

The law details what a customer should tell an insurance firm before taking out a policy.

From the date the law is enacted, insurance companies cannot rely on the current catchall that a consumer must supply ‘everything a prudent insurer should expect to know’.

Instead, insurers will have to ask consumers specific questions before they issue cover, and if they do not ask the question, they cannot sidestep a claim because they lacked the information when the policy was started.

The Law Commission felt this archaic rule was unfair to consumers, because they had no idea of what an insurer would expect to know about them when applying for a policy – yet the insurer could  void the policy, keep all premiums and refuse to pay out if they found some detail missing from the application.

Looking at the current law, the Law Commission found that consumers with valid claims were denied justice.

“Particular problems exist for older consumers, for those with criminal convictions and for those with serious illnesses such as multiple sclerosis,” said a Law Commission spokesman.

“The resulting muddle leads to a loss of confidence in the consumer insurance industry. This has particular relevance at a time when there has been discussion about insurance playing a bigger role in welfare provision.

“There is confusion over whether an agent or broker acts for the consumer or the insurer. This is significant if an agent is deemed to have acted for the consumer, as the consumer is held responsible for the agent’s actions.”

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