With effect from 6th April 2013 The Consumer Insurance (Disclosure and Representations) Act 2012 will come into force. It is important to note that this removes the duty on consumers to disclose any facts that a prudent underwriter would consider material and is replaced by a duty on insurers to ask customers all relevant questions about the specific information required at point of sale, according to insurance press reports at Ecclesiastical.

One of the core factors to be taken into account when determining whether or not a consumer has “taken reasonable care” is whether the questions asked of them at policy inception were clear and specific.
Amazingly, the Act does not currently apply to commercial insurance but will nevertheless have a significant impact on insurance distribution. It will apply to all personal lines insurances such as cheap taxi insurance or empty property insurance, regardless of whether insurance is purchased online, face to face or by telephone.

Impact on customers?

Emphasis. The Act will abolish the customers duty to volunteer facts that an underwriter might consider material – quite the reverse – consumers must take reasonable care to answer questions that are asked by insurers. As a result consumers will undoubtedly find they are being asked more questions and that the questions they are asked may go into more detail than they did previously.

Impact on brokers?

Though insurers will end up with most of the work, altering quotation forms and online question sets, brokers will still have some work to do. First and foremost you will need to make a clear differentiation between commercial and consumer clients. For example, you will need to introduce separate terms of business and take extra care in differentiating customers as the Law Commission’s definition of consumer business is not in exact alignment with that of the FCA.
Brokers will also need to educate consumer clients about the importance of providing accurate and complete responses to questions asked and stress the need to advise them if any of this information changes

Impact on insurers?

Without doubt. Insurers will need to review and adjust every single customer interface. This will include on line and off line proposal forms, point-of-sale documentation, call scripts and websites.
They will be absolutely sure that they ask clear questions of the consumer in terms of any information they require for acceptance and rating, and that any reference to the “duty of disclosure of material facts” is removed.
However, insurers will undoubtedly make it clear to consumers that they must take reasonable care to provide accurate and complete information in response to the questions they do ask.

Helen Chapman, partner at law firm Hogan Lovells, was quoted as saying in Post Magazine: “The coming in to force of the Act will usher in a new era in the handling of consumer insurance claims. It will be interesting to see the extent to which insurers will still challenge insurance claims, on what basis they will mount their challenge and what remedies they will seek. Are we entering an era in which contested claims will become a rarity?”

Moving Forward?

The Act offers an opportunity for brokers to differentiate the service they offer compared to many other distribution methods. Most of the requirements of the Act will already form part of brokers “Treating Customers Fairly” strategy. This article should not be relied on or implied that the information is correct. If you’d like further information about the Act there is plenty available. For the most independent sources of information take a look at the law commission website or  http://www.legislation.gov.uk/ukpga/2012/6/contents

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