Misrepresentation, Non-Disclosure and Breach ... - Law Commission

PART 6
GROUP INSURANCE, CO-INSURANCE AND
INSURANCE ON THE LIFE OF ANOTHER
6.1 So far we have considered issues of pre-contractual information that arise
between only two parties - the insurer and the insured. Here we consider more
complex situations, where the same issues arise in a context involving a third
party. We look first at group insurance, for example where an employer enters
into an insurance contract for the benefit of employees but the beneficiaries are
not parties to the insurance contract. We then outline the position in coinsurance,
where two or more policyholders enter into an insurance contract
together. Finally we explain the effect of our proposals where a policyholder
insures the life of someone else, either singly or jointly.
6.2 These issues cross the divide between consumer and business insurance. Group
insurance is usually taken out by a business, but the most common type of
scheme provides benefits to individual employees in a private capacity. Coinsurance
may be taken out by either businesses or by consumers. Similarly,
policyholders may insure the lives of others for either private or commercial
reasons.
GROUP INSURANCE
Introduction
6.3 Here we consider how issues of non-disclosure and misrepresentation should be
treated in group schemes. We consider primarily group insurance for employees.
At the end of the section we ask whether there are other types of group insurance
that need to be considered and whether any reform is needed for them.
6.4 Group insurance for employees forms a significant sector within the insurance
marketplace. The reinsurer Swiss Re kindly provided us with figures valid as at
the end of 2006. These show that over 60% of all long-term income protection
benefits are provided under group schemes and that over 50% of those with this
type of cover hold it through group membership. Nearly 40% of all life cover is
provided under group life insurance. Given its importance it is surprising that the
relevant law seems undeveloped. That is probably because group insurers (of
whom there are not large numbers) have developed fair practices. We think the
law should now be brought into line with these good practices.
What is group insurance for employees?
6.5 For the purposes of this section we use the term “group insurance” to refer to the
type of scheme arranged by an employer with an insurer. Although the employer
is the policyholder, the policy provides for the payment of benefits in respect of
those employees who are eligible for membership of the scheme and have joined
it. In some cases membership will be automatic, in others it may be optional:
often it will be offered as part of a flexible benefits package. Schemes may also
provide benefits to employees’ spouses, partners or dependants.
6.6 Various types of insurance are provided under this sort of arrangement, for
example:
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