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

Cases brought to the Financial Ombudsman Service
11.6 The report then analyses complaints to the Financial Ombudsman Service (FOS),
using published data, data supplied privately by the FOS and our review of FOS
cases. A point which arises starkly from the London Economics report is that
some forms of insurance are much more likely to lead to problems than others. In
comparison to their overall size, vehicle and household insurance lead to
relatively few complaints to the FOS about non-disclosure and misrepresentation.
Problems with non-disclosure are dominated by protection policies in general,
and critical illness policies in particular.
11.7 When one measures the number of complaints about non-disclosure issues
reaching the FOS per £m of premium income, the number of critical illness
complaints appears more than a hundred times greater than for buildings or
contents insurance. Although recent figures suggest that the number of
complaints about critical illness claims is dropping, the number is still of a
different order of magnitude than for other forms of insurance.
11.8 In some market sectors, we think that the effect of our proposals may be too
small to measure. This could be true for vehicle insurance. When it comes to third
party vehicle claims, insurers are already obliged to pay claims irrespective of
any misrepresentations by the policyholder. 3 This means that the impact of our
proposals on motor claims will only affect first party claims.
11.9 London Economics has used its analysis of the market and of the cases brought
to the FOS to develop a list of insurance markets that it believes should be
subjected to a full cost benefit analysis to assess the impact of our final
recommendations for reform. This is set out in Table 14, together with the
reasons for the selection. 4 The list includes: vehicle insurance; buildings
insurance; contents insurance; private medical insurance; critical illness
insurance; income protection insurance; and life assurance. Consultees are
asked to comment on the draft list. We also ask for help in gathering information
to assist in that analysis. 5
11.10 We welcome views on which insurance markets should be included in a full
cost benefit analysis of the impact of our final recommendations.
A CASE STUDY: CRITICAL ILLNESS
Critical illness
11.11 London Economics’ report uses critical illness as a case study to illustrate how a
model for measuring the impact of our reforms might work. This is not because
critical illness is a typical market. The critical illness market is extreme. Our
proposals would have more effect on this market than on any other. However, the
size of the problem means that more information is available, and the effects are
more easily perceived than in other areas.
3 See Road Traffic Act 1988, s 151.
4 Appendix B, p 31 below.
5 Appendix B, para 5.2, p 39 below.
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