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

PART 11
ASSESSING THE COSTS AND BENEFITS OF
REFORMS
LONDON ECONOMICS’ REPORT AND MODEL FOR ASSESSING COSTS
AND BENEFITS
11.1 It is important to look carefully at the costs in relation to the benefits of our
proposals. To this end we commissioned London Economics to develop a
possible methodology for exploring the impact of our reforms. London Economics
is an independent economic consultancy firm. 1
11.2 Their report is at Appendix B. It concentrates on the reforms set out in Part 4,
namely those that relate to the provision of pre-contract information by
consumers. 2
11.3 London Economics’ report is not intended to provide definite costing. As will be
seen, many of the figures are based on assumptions rather than actual data.
Instead, we hope the report will act as a focus for discussion about how the
impact of our proposals might be measured. In the light of the discussion
generated by this report, we will develop the methodology and, where possible,
use it to cost the effect of our final recommendations.
CONTENTS OF LONDON ECONOMICS’ REPORT
The UK insurance market
11.4 The report brings together available information about the size of the consumer
insurance market in the UK. The figures are based largely on the Annual
Expenditure and Food study, supplemented by ABI data, and we are grateful to
the ABI for their help with this. However, there are significant gaps in our
knowledge. We were not able to find even basic information on the number and
size of claims made under, for example, buildings and contents insurance. We
would welcome any help that insurers can provide in this and other areas.
Remedies for non-disclosure and misrepresentation
11.5 The report analyses the economic effect of the current strict law remedy of
avoidance for all non-disclosure and misrepresentation and compares this to
other suggested remedies, such as dealing with the claims in a proportionate
manner. This shows that avoidance goes further than is necessary to
compensate the insurer for the loss it has suffered from the misrepresentation.
This is because avoidance permits insurers to refuse those claims that would
have occurred in any event. The report then illustrates the effect of a
proportionate remedy, which attempts to put the insurer into the position it would
have been in had it been aware of the full facts.
1 Their website is at www.londecon.co.uk.
2
It does not deal with the non-contestability period in life insurance which we raise as a
possibility in para 4.190. See further at para 11.38 below.
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