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

11.31 However, accurately quantifying the effect of our proposed changes would
require accurate information, first about the current level of non-compliance, and
secondly about the improvement our reforms would bring about. Although we
think our reforms would make it more difficult for firms to contravene the
standards the FOS currently expects, we would never suggest that a new statute
would eradicate all malpractice. Some firms that currently fail to comply with the
FSA rules and the FOS guidance would also fail to comply with the proposed
Insurance Contracts Act. In the absence of this data, any costings are highly
speculative and should be treated with great care.
11.32 The effect of our proposals also depends on the way that non-compliance is
distributed in the market. If the main problem is that a few firms are failing to
comply with FOS guidance, under our proposals these firms will either have to
change or go out of business. However, if there are pockets of non-compliance
within some otherwise well-run firms, the change may result in increased
premiums across a wider pool of consumers.
11.33 It is clear that more accurate data is necessary to assess the impact of the
reforms and consultees are requested to comment on the model, the results and
to provide additional information where they can.
11.34 We ask whether the economic effect of our reforms should be assessed
using the model commissioned from London Economics, which is set out
at Appendix B to this Consultation Paper.
11.35 We ask whether consultees are able to provide us with further data to
enable us to carry out this assessment.
Is there still a role for low-cost, low-payout policies?
11.36 It has been suggested that our policies would disadvantage low-income
households because consumers would be forced to pay more for better quality
policies. It would be more difficult to sell low-cost policies that pay fewer claims. It
is true that our proposals are designed to prevent policies being sold that appear
to promise payments, where that promise is undermined by small-print exclusions
or harsh claims-handling guidance.
11.37 However, there is nothing in our reforms to prevent insurers from offering lowcost
policies that provide payment in only very limited circumstances, provided
those circumstances are clearly presented to the consumer. In the case of critical
illness policies, the most obvious way this can be done is to limit the illnesses
covered to a few clear conditions, such as cancer, strokes and heart attacks.
Provided that the limitations of the policy are clearly presented in a transparent
way, it will still be open to insurers to design low-cost, low pay-out policies if they
think these meet a market need.
LIFE INSURANCE: THE EFFECT OF A FIVE YEAR CUT-OFF PERIOD FOR
NEGLIGENT MISREPRESENTATIONS
11.38 In Part 4 we ask whether in life insurance, insurers should have no remedies for
negligent misrepresentations made more than five years before the death. This
proposal does not apply to critical illness policies, and so is not taken into
account in the case study outlined above.
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