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

CONSUMERS – THE CURRENT POSITION
Introduction
9.94 In this section we look at how the strict legal rights of the consumer are
supplemented by regulatory measures. In January 2005, the UK implemented the
Directive on Insurance Mediation 57 by bringing insurance intermediaries within
the ambit of the Financial Services Authority (FSA). This has made it much easier
for consumers to pursue disputes against intermediaries. Authorised
intermediaries are now required to carry professional indemnity insurance; 58 to be
within the Financial Services Compensation Scheme (FSCS); and to be members
of the Financial Ombudsman Service (FOS). This means that where an
intermediary has acted negligently or fraudulently in misrepresenting the
policyholder’s position to an insurer, the policyholder has access to an
independent complaints system. And if the intermediary becomes insolvent, the
policyholder may pursue a court judgment or ombudsman decision against either
the professional indemnity insurer or the FSCS.
9.95 The problem, however, is that FSA regulation has done little to clarify against
whom policyholders should bring their complaints. Although the FSA requires
intermediaries to make various disclosures about their status, these were not
designed to address the issue of whom the agent is acting for at any given time.
We have found several cases in which consumers have pursued complaints
against an insurer to a final ombudsman decision: at the end of long, involved
proceedings, they have been told that they brought the complaint against the
wrong organisation and need to start again at the beginning. This brings
insurance law – and the insurance industry – into disrepute. It is unsatisfactory for
the consumer, for the insurer, and for the FOS alike. There remains a need for
greater clarity in this area.
9.96 We start by outlining the ambit of FSA regulation. We then discuss how the FSA
rules do (or do not) clarify issues of agency; and consider the powers of the
Financial Services Compensation Scheme. We then describe the powers and
approach of the FOS and outline our findings from a sample of FOS cases.
57 2002/92/EC of 9 December 2002, OJ L 009, 15/01/2003 p 0003. The ICOB rules also
implement the Distance Marketing Directive and other insurance directives. The Davidson
Review points out that in some respects the UK has “over-implemented” some aspects of
these directives. The scope is wider (for example, by including motor warranties) and
includes more extensive disclosure requirements. Whereas the Directive only requires an
intermediary to establish a basic complaints system, the FSA rules require intermediaries
to be members of FOS (see Davidson Review on the Implementation of EU Legislation,
Final Report, November 2006, pp 18-23 at
http://www.cabinetoffice.gov.uk/regulation/reviewing_regulation/davidson_review).
58 FSA Handbook, MIPRU 3.2.1.
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