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

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Section 4 Baseline analysis of insurance markets and the extent of non-disclosure In relation to the UK insurance markets, we have incorporated some information from the recent work of the Financial Services Authority (FSA, 2007) that identifies insurance markets according to the complexity or standardised nature of the product and the degree to which the cover provided by the policy or the price is the key focus of consumers when purchasing/renewing insurance. We also provide information on the primary means by which some of these insurance products are sold (face to face, tied to another product or online and the extent to which the opportunity arises for shopping around for alternative quotes (e.g. annual renewal). We also indicate the extent to which there is some statutory requirement to be in possession of different types of insurance and an aggregate assessment of the elasticity of demand for particular insurance products. We would appreciate comments from consultees on the assumptions made here in relation to the elasticity of demand and any other information that might assist us in assessing the sensitivity of the demand for insurance with respect to price Table 13: Information on products sold and price being the major determinant of insurance purchase Type of Insurance Nature of Product Focus Statutory Requirement Elasticity Buildings Insurance Standardised Price No 12 Less elastic Contents Insurance Standardised Price No More elastic Medical Insurance Complex Mixed No More elastic Vehicle Insurance Standardised Price Yes Less elastic Mortgage Protection Complex Mixed No Less elastic Term Assurance Complex Cover No Less elastic Critical Illness Complex Cover No Less elastic Income Protection Quite complex Mixed No Less elastic Pet Insurance Standardised Cover No More elastic Payment Protection Insurance Complex Cover No More elastic 12 Although it is not a statutory requirement to have building insurance, it is often a requirement if the property is purchased with the assistance of a mortgage provider London Economics June 2007 29
Section 4 Baseline analysis of insurance markets and the extent of non-disclosure From this information we have assessed that buildings and vehicle insurance are less price elastic given the fact that it is either a statutory requirement or linked to the terms and conditions of a mortgage offer. We have also described mortgage protection insurance, term assurance, income protection and critical illness coverage as being relatively inelastic given the complexity of some of the products being sold and the fact that they are sometimes linked to the sale of other financial products. We have assumed that contents insurance, private medical insurance, pet, and payment protection insurance are relatively elastic given the fact that there is no requirement to hold these types of insurance. In determining the relative elasticities, we are aware that there may be some disagreement with our assessment and we would urge consultees to provide their view on the appropriateness of our assessment. 4.5 Section Conclusion In this section of the report, we have attempted to gather together the relevant information to allow the characterisation of the various insurance markets. We have done this by considering the market penetration of various insurance products, as well as average premiums and the extent of claims being refused for reasons of non-disclosure or misrepresentation. Given the information presented, we believe that the following insurance markets should be assessed for a full economic cost benefit analysis, as well as the primary reason(s) for selection. We would appreciate the view of consultees on the appropriateness of the selection and the provision of any information or data that might be able to improve this first selection. London Economics June 2007 30
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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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10.70 We welcome views on whether p
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Cases brought to the Financial Ombu
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11.18 When we commissioned this mod
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The overall effect 11.27 The model
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11.39 Unlike our other proposals, t
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12.9 Do consultees agree that the d
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12.22 We provisionally reject the p
Page 291 and 292: Contracting out of the default regi
Page 293 and 294: Consumer insurance: “joint lives,
Page 295 and 296: 12.68 If the voyage conditions are
Page 297 and 298: ASSESSING THE COSTS AND BENEFITS OF
Page 299 and 300: THE STATEMENTS OF PRACTICE 1977 A.4
Page 301 and 302: Voluntary measures unsatisfactory A
Page 303 and 304: In such circumstances, it was also
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
Page 329 and 330: Section 4 Baseline analysis of insu
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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
Page 375 and 376: Table 2: Consumer cases: main infor
Page 377 and 378: Table 4: Consumer cases: time of no
Page 379 and 380: C.27 The FOS has explained that in
Page 381 and 382: Have you any physical defect or inf
Page 383 and 384: The FOS approach to unclear questio
Page 385 and 386: Deliberate Customers deliberately m
Page 387 and 388: C.65 A further complication of the
Page 389 and 390: I cannot accept that the complainan
Page 391 and 392: (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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