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

1.71 We think that consumers would almost invariably wish to transfer risks in this
way. That is why the rule is already enshrined in FSA Rules and FOS practice.
For businesses, that is the normal starting point, and part of generally accepted
commercial practice. However, if a business wishes to negotiate a different
allocation of risk, it should be free to do so.
Costing the effect of our proposals
1.72 Any increase in premiums will be small, but it is difficult to say how small. In our
final report, we hope to produce estimates of what the increase might be. That
involves an assessment of current practice. In the consumer market, most of our
proposals are already FSA requirements or represent normal ombudsman
practice: the effect on reputable insurers will therefore be slight or even
negligible. The main effect will be on those firms who are prepared to disregard
FSA Rules and FOS practice, but would find it more difficult to disregard clear
law. It is not easy to gauge the extent of this non-compliance. In Part 11 we
discuss the issues involved in measuring the effect of our proposals, while
Appendix B sets out a report from independent economists to illustrate how a
possible model might work.
1.73 At this stage, we invite views on the methodology and ask for data. Following
consultation, we will attempt to assess the costs and benefits of our proposals,
together with their associated administrative and transitional costs.
CONSUMER INSURANCE: ENSHRINING EXISTING PRINCIPLES OF GOOD
PRACTICE INTO LAW
1.74 Thus for consumer insurance our proposals aim to bring the law into line with
consumers’ reasonable expectations and good practice, as these are reflected in
the Statements of Practice, the FSA Rules and the practice of the FOS.
Three principles
1.75 For example, at the pre-contract stage, we think that it is important that the law
should continue to require consumers to take reasonable care to answer the
questions they are asked accurately and completely. However, reform should be
guided by three principles:
(1) Insurers should ask questions about what they want to know; consumers
should not be expected to give information that has not been asked for.
(2) A consumer insured who was both honest and careful in giving precontract
information should not have a claim turned down on the basis
that the information was incorrect or incomplete.
(3) A consumer who was honest in giving pre-contract information, but less
careful than they should have been, should not automatically lose their
claim. The outcome should depend on what the insurer would have done
had it known the true situation.
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