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L&G fears cheating over non-contestability move

Insurers have criticised the Law Commission’s proposals for a five-year non-contestability period for life insurance, claiming it would encourage consumers to cheat on application forms and ultimately drive up prices.

Legal & General protection marketing and channel development director Alan Ferguson says the number of claims where non-disclosure has occurred is significant.

Ferguson says the proposals would mean that insurers would pay out on more claims and would have to tighten their underwriting procedures to balance the extra cost, putting off more people from buying protection.

He says: “There will be pressure on insurers to substan-tially stiffen initial underwriting procedures, making insurance harder to achieve in general and more so for people with a complex per-sonal history.”

Ferguson says a non-contestability period may encourage consumers to make reckless or deliberate misrepresentations on their application forms.

Swiss Re head of underwriting Jerry Brown says: “There has got to be a level of equity. If, after five years, the insurer cannot act, then there is no incentive for consumers to tell the truth.”

However, Lifesearch head of protection strategy Kevin Carr says the non-contestability period will essentially have no effect on the market because providers would still be able to turn down fraudulent claims.

The Law Commission says reforming the Marine Insurance Act 1906 would give better consumer protection but Carr believes the proposals do not go far enough.

He says: “The proposals are sensible but not radical. What we need is something more radical and for it to be implemented quicker.”

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