But industry commentators are claiming that the principles could be misinterpreted, suggesting greater clarity is needed.
In its Reforming Insurance Contract Law Policy Statement – the status of intermediaries, the Commission is proposing a statutory code to be included within the Bill it is currently drafting on pre-contractual information in consumer insurance.
Though the proposals are up for question, the paper says that the intermediary is acting as the insurer’s agent when the insurer exerts substantial control over the way that the intermediary conducts its business.
However, RGA UK business development manager Mick James says this could throw up potential problems for insurer-owned networks and intermediary firms.
He says: “Possibly this is the most interesting example, where insurers who own stakes in intermediary companies could be deemed to exert substantial control.
“If this is the case then this could lead to disinvestment and a weakening of the sector. Similarly, an insurer who is an owner of a network may be disadvantaged by this when compared to an insurer who is a panel member, again leading to market distortions.”
Bupa Individual Protection head of product development Steve Casey says the consultation paper throws up as many questions as it does answers.
He says: “I understand the RGA view and agree. It is fundamental that the consumer has a clear understanding of when an intermediary is acting on either their behalf or that of the insurer.
“This goes some way but leaves other questions unanswered.”
Law Commission team manager for commercial and common law Tamara Goriely says this clause is not meant to be interpreted this way.
She says: “The insurer exerts substantial control over the way that the intermediary sells the product and transmits information from the consumer to the insurer rather than about the way the institution is structured.”
The paper also states that an IFA inputting client details into the insurer’s system is acting for the insurer therefore the insurer would not be able to refuse a claim because errors occurred in the transcription process.
But James says: “Insurers are not likely to be comfortable with taking on liabilities for either intermediary mistakes or negligence. The implication would be that life offices would no longer give commission enhancements for online submissions, and in turn this could also lead to more paper applications being submitted.
“Paper submissions are significantly more costly for life offices which would erode profits and add upward pressure on price.”
Casey says: “I do not think that it is the Law Commission’s intention for the insurer to undertake the policing of the intermediary. That should be down to the professionalism of the intermediary plus their own regulatory regime.”
Goriely says the Commission is now “desperately” writing the final report and will try to publish it as soon as possible.
She says: “It will probably not be available until the end of the year.”
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