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

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Section 3 Economic incentives in insurance markets Assuming that the detection of misrepresentation or non-disclosure is imperfect, allowing claims on the payment of additional premiums substantially under-compensates the insurer and provides some individuals with possible incentives to misrepresent or not fully disclose to the detriment of the insurer. In the illustration presented here, proportionality appears to provide a more appropriate way of compensating insurers for the potential loss caused by misrepresentation. London Economics June 2007 15
Section 4 Baseline analysis of insurance markets and the extent of non-disclosure 4 Baseline analysis of insurance markets and the extent of non-disclosure 4.1 Market characteristics and coverage In this section we present some information on the size and coverage of the various consumer insurance markets using a variety of measures. Specifically, we have attempted to provide a range of measures that will allow the Law Commission to assess the specific insurance markets that might be suitable for a full assessment of the costs and benefits associated with the proposed reforms. We have gathered together some of the existing information on the characteristics of various consumer insurance markets from a variety of sources but it is clear that there are evidence gaps and more comprehensive information would greatly assist the analysis. We would hope that the consultation exercise would help in this process and would ask consultees to provide as much information as they have available to assist with any further analysis. The characteristics of the insurance markets we present relate to the size of the market – expressed in terms of the number of policies purchased in a particular year or the number of households with a particular type of insurance policy and the average premium charged to consumers or the average annual household expenditure on a particular type of insurance. Combining the household coverage and household expenditure on premiums provides one measure of the size or household penetration of various insurance products. This does not imply that the markets that should be considered for a full cost benefit analysis are simply and exclusively those markets that are large in a financial sense. The reforms proposed in relation to non-disclosure and misrepresentation might affect particular types of insurance products disproportionately. As such, the Law Commission needs to take these factors into account. Therefore, we have also attempted to gather data on a second set of characteristics describing the various insurance markets in respect of the number of claims annually, the number of claims paid out by insurers, the average size of settlement and the proportion of claims submitted that are not paid for reasons of non-disclosure or misrepresentation. We also provide some information on the number of complaints brought by consumers to the FOS that relate to non disclosure or misrepresentation. In Tables 6 and 7 below, we present information from the 2005/2006 ONS Annual Expenditure and Food Survey, which gathers detailed information on the weekly expenditure of 6,785 households voluntarily participating in the survey of households in the United Kingdom. London Economics June 2007 16
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The Law Commission Consultation Pap
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THE LAW COMMISSION THE SCOTTISH LAW
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v Paragraph Page Innocent misrepres
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vii Paragraph Page Marine Insurance
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OUTLINE 1.1 This Consultation Paper
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• At present, consumers have a du
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• Any warranty should be set out
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PART 1 INTRODUCTION OUTLINE OF THE
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1.11 The 1906 Act therefore imposes
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(1) The insurer may use warranties
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1.17 When in 1980 the English Law C
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1.28 For most consumers with disput
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“Fairness” and reasonable expec
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1.50 The parties should be free to
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“Moral hazard” and the need for
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1.71 We think that consumers would
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1.80 We ask what the appropriate re
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(2) Appendix B is a report commissi
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Although the issues arise under a p
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Thus if, when a claim is made, the
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2.21 In both jurisdictions the vict
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(2) Before an insurer may avoid a c
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Subject to the provisions of this s
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Despite some contrary suggestions,
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Held covered in case of any breach
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(2) The warranty is relevant to onl
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2.61 Classification of the term is
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2.68 Such clauses elevate the answe
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These are often referred to as “c
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2.82 We accept that an exception to
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(d) readily available to any person
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2.101 If the term were not sufficie
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2.111 The law on warranties is simi
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(1) Each proposal form was required
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3.14 TCF is a valuable initiative w
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THE FINANCIAL OMBUDSMAN SERVICE 3.2
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Research project 3.32 When we start
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Case study: clear questions should
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3.43 These examples look only at th
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Warranties of fact 3.50 We did not
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(9) The FOS has more experience tha
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3.63 There might of course be some
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The risk of legal challenge 3.72 We
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(3) BOTH HONESTLY AND CAREFULLY (OR
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4.10 Some consultees have asked how
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4.18 The FOS’s requirement that t
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General questions 4.21 As we have s
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4.32 We provisionally propose that
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4.43 We would also point out that a
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Criminal fraud 4.55 First, some ins
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4.62 We stress this point, because
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4.70 The issue is further confused
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Relevance 4.80 Secondly, our defini
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4.92 However, we are not sure that
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Different ways in which policyholde
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Judging what is “reasonable” fo
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4.121 We ask whether the legislatio
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...the reasonable expectation of th
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4.142 The proposer should take care
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4.154 Few of the legal systems that
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4.162 We accept the first argument
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No reinsurance 4.173 It may occasio
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Effect on future cover 4.183 The fo
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Reactions 4.195 This question excit
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4.206 In Part 3 we identified one p
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Our proposals 4.228 Therefore we pr
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5.5 We have therefore sought soluti
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(2) Similar protections would apply
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(1) The duty of disclosure has beco
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Thus if a business insured ought to
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5.46 On the one hand, it seems righ
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5.57 Insurance law is currently har
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5.67 This is the same rule that we
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5.76 We were told, for example, abo
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5.86 We have already set out our pr
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Proving that an action was delibera
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Cancelling for the future 5.105 We
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(1) The law could allow statements
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5.124 Is one approach better than t
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Controlling the use of standard ter
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However, the provenance of the term
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Reinsurance 5.153 Our starting poin
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5.163 It is important to bear in mi
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5.170 The same issues arise here. A
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PART 6 GROUP INSURANCE, CO-INSURANC
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6.9 There may, however, be cases wh
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6.18 We were told that whatever the
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6.31 There is one question on which
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(1) Where a member has made a delib
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The FOS approach 6.48 In our survey
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6.59 In Part 4 we provisionally pro
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6.73 In business contracts, we prop
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(3) The policy may contain exceptio
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Statements of Insurance Practice 7.
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TREATING CUSTOMERS FAIRLY 7.22 In P
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7.31 Case 14 concerned a critical i
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7.40 Insurers have told us that the
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7.50 Large businesses are more able
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Civil law jurisdictions 7.61 The no
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PART 8 WARRANTIES AS TO THE FUTURE
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8.24 Although our general policy is
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8.33 It may be helpful to illustrat
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8.41 We have considered whether the
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8.51 For business insurance it is a
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8.62 These provisions require the c
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(1) The protection only applies to
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…subject to any express provision
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8.92 This means that neither the in
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Waiver and affirmation 8.101 The ch
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8.107 Scots law has not developed a
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The implied marine warranties 8.116
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Implied voyage conditions 8.127 The
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PART 9 PRE-CONTRACT INFORMATION AND
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9.6 The issue is far from new. Repo
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THE CURRENT LAW Introduction 9.16 R
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The broker as agent for the insured
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There must be every day thousands o
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(1) on the basis of a fair analysis
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9.47 The problem is particularly ac
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Transcribing information to screen
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9.61 However, the case law suggests
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However, it is not obvious that thi
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Section 19(b) 9.77 We have not rece
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It seems to me, both from a reading
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CONSUMERS - THE CURRENT POSITION In
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9.101 For these types of activity,
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(3) whether the firm has or will pr
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9.118 This was the view taken by a
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Unfortunately, the firm has contemp
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PART 10 PRE-CONTRACT INFORMATION AN
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10.9 Some intermediaries fall outsi
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10.19 We think this is a less attra
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10.25 Insurers may find it more dif
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Completion of proposal forms: the N
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Marine Insurance Act 1906, section
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10.56 The great majority of busines
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Page 291 and 292: Contracting out of the default regi
Page 293 and 294: Consumer insurance: “joint lives,
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Page 297 and 298: ASSESSING THE COSTS AND BENEFITS OF
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Page 301 and 302: Voluntary measures unsatisfactory A
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Page 305 and 306: A.39 In 1984 the DTI put forward a
Page 307 and 308: GENERAL INSURANCE STANDARDS COUNCIL
Page 309 and 310: A.63 This report is of particular i
Page 311 and 312: In order to allow flexibility and t
Page 313 and 314: A proposed model for assessing the
Page 315 and 316: Tables & Figures Page Table 1: Illu
Page 317 and 318: Section 1 Introduction and Terms of
Page 319 and 320: Section 2 What are the primary chan
Page 321 and 322: Section 3 Economic incentives in in
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Page 331 and 332: Section 4 Baseline analysis of insu
Page 345 and 346: Section 5 Identification of the pot
Page 353 and 354: Section 6 Case Study - Critical Ill
Page 371 and 372: Annex 1 References Cockburn, B. (20
Page 373 and 374: APPENDIX C THE FOS APPROACH TO ISSU
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Page 377 and 378: Table 4: Consumer cases: time of no
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C.27 The FOS has explained that in
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Have you any physical defect or inf
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The FOS approach to unclear questio
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Deliberate Customers deliberately m
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C.65 A further complication of the
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I cannot accept that the complainan
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(2) W failed to disclose an eating
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C.89 One problem with relying on om
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When does the FOS apply the consume
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The overall success rate C.107 The
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Institute of Actuaries Healthcare C
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