New insurance law protects claimants

call centreA new insurance law that will make it harder for insurers to refuse to pay claims comes into force today.

The Consumer Insurance Act was demanded by the Law Commission and initially opposed by insurer body the Association of British Insurers. It puts the onus on insurers to ask customers for information, not on customers having to volunteer it.

Uberrima fides

Under the old law, based on a principle called "utmost good faith" (Uberrima fides), customers had a duty to tell insurers any information that might affect their policy. But most punters didn't know what information was relevant or not. Insurers could then refuse to pay a claim, blaming the customer for not having told them a supposedly vital piece of information.

The Financial Ombudsman Service had increasingly over-ruled the law, acting on behalf of customers, making clear it was not fair for insurers to deny claims when they had not asked for information at the time they sold the policies. But many customers who had claims denied never took their case to the ombudsman.

Long arm of the Law Commission

David Hertzell, the Law Commissioner who has worked on the new law since 2007, welcomed the fact that the law had finally come on stream. "The key thing is that the inconsistency between the law, the Financial Services Authority's regulation, the Financial Ombudsman and the ABO code of practice has been taken out. There's now one place to look for clarity.

"If the insurers want to know something they have to ask that question. You have a to answer that honestly but if they didn't ask it at the time they cannot use the information later to deny a claim."

The ABI said: "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.

The Consumer Insurance Act will:

  • Place a duty on insurers to ask customers all relevant questions about the specific information required at point of sale
  • Provide legal protection for customers that claims will not be declined for non-disclosure unless information is deliberately or carelessly withheld or misleading
  • Apply to all personal insurance, such as home, car and travel insurance, life, critical illness and income protection insurance, health and pension annuities.
  • Apply no matter how insurance is purchased, be it online, by telephone or face to face.

Fierce competition and consumer who want to buy fast and cheap means insurers are unlikely to start asking more questions, slowing the selling process and making it more expensive, so the likely outcome will simply be fewer claims turned down.
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