In a joint report with the Scottish Law Commission, the LC says new laws are needed to ensure consumers are not prejudiced by current insurance laws, which date back to the early 1900s.
Currently insurers can decline claims whereby the policyholder has non-disclosed on their application form. However, the LC says such laws could act as a “trap” for consumers and are “overly harsh”.
It is therefore proposing that those consumers who take reasonable care to answer insurers’ questions fully and accurately can expect a full payout.
It says insurers must ask the right questions and where a consumer makes a careless mistake when answering a question they might still be entitled to have some of the claim paid.
Insurers, the Financial Services Authority and the Financial Ombudsman Service will abide by the new rules if implemented.
LC law commissioner David Hertzell says: “Our reforms would improve consumer protection, increase consumer confidence and enhance the reputation of the insurance industry. They have the backing of consumer groups and the insurance industry.”
To date, the Association of British Insurers has been working closely with the FOS to reduce the number of declined claims due to non-disclosure. They have so far drafted a code of conduct its members must follow when claim handling.
ABI director of general insurance Nick Starling says: “We are pleased that the Law Commissions’ proposals to reform the law are very similar to recent codes and best practice which ensure that customers are treated fairly.”