global insurance management

The Consumer Insurance Act 2012

Apr 11 2012

The Consumer Insurance (Disclosure and Representations) Act 2012

Relevance:                   All firms.

Action required:           None; for awareness and early warning of probable changes to come in March 2013

A new Act giving greater protection to consumers who take out insurance policies received Royal Assent on 08 March 2012.  Consumer insurance law has remained unchanged for more than 100 years and the new Act will update the 1906 Marine Insurance Act.

The Consumer Insurance (Disclosure and Representations) Act 2012 abolishes a consumer’s duty of utmost good faith to volunteer information to the insurer and replaces it with a duty to answer questions honestly and reasonably.

Its provisions are relatively uncontroversial and reflect what is generally already accepted to be industry good practice and the approach taken by the Financial Ombudsman Service (FOS).

The Act only covers consumer insurance, which it defines as insurance bought by individuals "wholly or mainly for purposes unrelated to their trade, business or profession".  This wording is intended to be broad enough to include "mixed-use" contracts, which cover both private and business use, as long as the main purpose of the contract is for private use.  This differs from the FSA's approach, which treats a customer acting in the capacity of both a consumer and a commercial customer as a commercial customer

If the consumer is careless in his or her answers then a proportionate remedy will be applied, with the test being what would have happened if the insurer had known all the facts.  This modifies the consumer's duty of utmost good faith by removing the obligation to disclose all material facts. The consumer would no longer be required to volunteer information but only to respond honestly and with reasonable care to questions asked.

The Act will come into force on or after 8 March 2013.

Insurers' proposal forms, contractual terms, and their underwriting, reserving and dispute resolution procedures, are all likely to be materially affected when that happens.

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