Reform of insurance contract law is long overdue. Relying on the Marine Insurance Act 1906 as the legal basis of all modern day insurance contracts - life and general - is just plain daft. It has long since ceased to be fit for purpose and modern day practice ignores it. All of this is accepted by the insurance industry.
So, what happens when there is a chance of reforming it and bringing at least some of it into the 21st century? Answer: the industry, at least the form of the Association of British Insurers, spurns the opportunity. Surprised? shocked? I certainly was and so were members of the All Party Group when they heard the ABI's reaction to the Law Commission proposals this morning.
The Law Commission's proposals are hardly a surprise and seem a very reasonable response to the weight of evidence it had from the industry and consumers.
What is proposed is a sensible modification of the utmost good faith principles for personal lines insurance. The Commission wants to remove any remaining sense of obligation that might linger for consumers to answer questions that haven't been asked. It then wants claims to be paid to "honest and reasonable" consumers even when a mistake has been made, that mistake itself also being subject to the "honest and reasonable" test. No more hiding behind irrelevant or minor non-disclosure.
If the consumer has been "careless" (again, the Commission's word), then the claim should be treated as if the correct information had been given at the policy inception; and, if the claimant, is dishonest, the claim should be declined.
Many would say this regime should provide a welcome degree of certainty based on no more than best current practice in the market. Instead, the ABI pleaded that it should be left the a combination of the Financial Services Authority (and its Treating Customers Fairly regime) and the Financial Ombudsman Service. It is hard to think of a combination that would generate more uncertainty and retrospection than a fluid regulatory regime.
This reform of insurance contract law is suddenly in danger of becoming a huge lost opportunity for the industry to align itself with the interests of consumers to the benefit of both. An urgent rethink is required.
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