Did you know that the Consumer Insurance (Disclosure and Repre-sentations) Bill comes into force in March of this year?
No? Well, unlike the several famous law-changes that have taken effect recently, this long-overdue and far-reaching act has enjoyed an almost subterranean profile.
It will, however, affect you if you deal in insurance of any sort but particularly in the type I wish we all called protection (with a capital P).
You will remember it is the customer’s job, when applying for insurance, to disclose all relevant information. The current law requires the customer to tell the whole relevant truth whether the insurer asks the right questions or not. Innocent mistakes and oversights leave the customer as potentially liable as intentional ones.
Well the act formalises a new level of care, where the customer need only act reasonably and what’s more it’s the job of the insurer or their agent to ensure that the customer was able to be reasonable and was given every chance to be so.
There are no explicit rules as to what that means; FOS case law will decide, and in doing so the FOS will expect the insurer to be responsible for the applying customer being in a fit state of mind, the clarity of questions, the quality of any marketing material and much more.
While much of this is just catching up with the way the FOS has been operating for a while, it still represents clarification and extension of an arduous duty of care for insurers but I would not bother you with it if it did not have a proper sting in the tail.
The sting is that the act quietly and radically changes the law of agency in arranging insurance contracts. For it makes clear that the presumption that an agent is acting for the customer is changing and that unless the agent filling out the form is independent he will be considered to be an agent of the insurer.
The schedule to the act makes clear that if the intermediary can only offer the products of a single or limited panel then s/he is the insurer’s agent not the consumers.
To this independent that makes total sense but to the insurer it means that their liabilities are potentially far greater when the agent is not a true independent.
And it also means that the first thing the FOS will have to decide every time a claim is disputed is who the intermediary was acting for. If it is the insurer, then insurers will pay out more often as the case law evolves in favour of the customer, as it surely will. But if the agent is independent and thus the agent of the customer, it won’t be the insurer who faces the questions from the customer’s lawyers first; it will be as it is today, the intermediary. That is why my firm records all calls and only completes applications over the phone. But the act makes clear that in the future that will change for those who are tied or multi-tied. The insurer will have to take responsibility for them.
I wonder if insurers will have to increase premium rates to consumers buying through channels they will now be deemed to control (or drop those offered through true independents), to take account of this new differential in responsibility. For me it’s logical to expect insurers to reflect differential levels of risk in their terms after March, but I doubt they will volunteer such even though a tied agent’s mistake will end up costing them a lot more in claims than will an independent’s.
Tom Baigrie is chief executive of Lifesearch