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

Section 5 Identification of the potential impact of the reforms
It is clear that the proportion of Type 1 and Type 2 firms in each market will
vary. We would appreciate it if those participating in this consultation
exercise might be able to assist us in providing assistance in determining how
to divide the market between the different types of firm.
In a standard appraisal model, the ‘process’ normally refers to the delivery of
the policy in question and especially where there may be alternative models
of delivery. There may be geographical variation or, depending on the nature
of the firm or consumer in question, even variation in the intensity or timing
of policy. We have assumed that these proposals are universal and apply
equally to all firms operating in the marketplace. The proposals will not
apply retrospectively and as such there is the possibility that a ‘dual system’
will operate for the first few years following implementation.
The variation in this appraisal model relates to the impact of the proposed
legislation on different types of firm or firm behaviour. Given the diverse
classification of firms, we have attempted to assess the differential impact of
the proposal on the two types of firms in the marketplace separately though
there will be some elements of the proposal that will affect them in an
identical manner. There may also be other impacts associated with the
proposals and the consultation exercise will allow the final analysis to be
augmented as better information becomes available.
5.1.2 Impact of proposals
In general terms the proposed changes to the rules on non-disclosure and
misrepresentation will have different impacts depending on the type of firm
in question. We therefore present a short discussion of the expected impact
on each type of firm and on consumers more generally. We attempt to
generate a model with some initial estimates of the economic costs and
benefits associated with these proposals in relation to one specific insurance
market in the next section, therefore, it is key to ensure that there is
agreement regarding these possible impacts, as well as supporting data
where possible.
Costs to Firms
Claims
For Type 1 firms that generally attempt to follow the decisions made by the
FOS, the number of claims not paid for reasons of non-disclosure or innocent
misrepresentation will remain approximately the same, as in theory the FOS
already requires these claims to be paid. Similarly, the number of claims
refused as a result of dishonest behaviour by the consumer is likely to stay
largely the same.
London Economics
June 2007 35