On 6 April this year the Consumer Insurance (Disclosure and Representations) Act 2012 came into force.
At it’s heart, the act seeks to shift the emphasis, at application stage, away from the consumer’s duty to ‘disclose information an underwriter may consider material’.
Now, the onus is on insurers to make sure their application forms ask all relevant questions and that those questions are clear and specific. The consumer’s responsibility now is to ‘take reasonable care not to make a misrepresentation’.
So, it’s an end to some familiar, age old, insurance industry terminology such as ‘utmost good faith’, ‘duty of disclosure’ and ‘non-disclosure’. In addition, our customers will no longer be expected to guess what we, the underwriters and claims assessors, consider ‘material’.
The act seeks to protect consumers who act both honestly and reasonably when applying for insurance. In future, claims will be declined (for misrepresentation) only where the disclosure has been deliberate, careless or misleading. In turn, this should increase consumer confidence in insurers and the likelihood of claims being paid.
So, what does all this mean for the industry? Is it a revolution? Is there mass panic? Are we changing our working practices dramatically?
Well, no, not really. The beauty of the act is that it reflects many of the positive things we already do and many of the changes we’ve already put into place.
In recent times we have seen fewer claims being declined for non-disclosure (misrepresentation from now on). There are fewer assumptions made on the applicant’s behalf, fewer pre-filled answers on electronic applications and rolled-up or bundled questions are disappearing.
This is mirrored by an increase in warning messages, help text and guidance notes. The advent of tele-underwriting will also have helped ease customers through the application process.
No change in legislation is ever likely to result in all claims being paid.
Deliberate, reckless or careless misrepresentation, where the applicant knowingly makes an untrue or misleading disclosure will still exist – at Aegon we declined 3 per cent of critical illness claims for what is now referred to as misrepresentation in 2012.
The act won’t cure everything, application questions, design and layout will continue to evolve. We face an ongoing challenge to produce question sets that are both easy to navigate for customers and allow us understand and manage the risks we accept.
The great hope from all of this has to be that those potential customers who are currently turned off the idea of protection, and insurance in general, begin to have faith in the products we sell and their ability to provide the expected benefit, to honest customers, when it matters most.
Simon Jacobs is head of underwriting and claims strategy at Aegon