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

Section 5 Identification of the potential impact of the reforms
Although there is an administration cost associated with introducing new or
amended questionnaires, the proposal will allow insurance companies to deal
with claims more transparently and efficiently. Therefore, even though there
may be some additional cost in the initial stages, this might be more than
compensated for over the longer term through reduced training costs for call
handlers and general productivity gains.
Benefits to Firms
Retaining Premiums in the case of deliberate and reckless nondisclosure
It appears in practice that firms usually do not retain premiums when they
refuse a claim for reasons of deliberate or reckless non-disclosure or
misrepresentation. The Law Commission asks whether firms should be
entitled to retain premiums in these circumstances.
Commercial Benefits
There may be some additional commercial benefits accruing to Type 1 firms
from the introduction of these reforms. Currently Type 2 firms have a degree
of cost advantage over Type 1 firms given the lower likelihood of making
payment following a claim. The introduction of these proposed reforms will
reduce the ability of Type 2 firms to undercut Type 1 firms (following the
disproportionately large increase in claims paid by Type 2 consumers) and
this may lead to an increase in the demanded for insurance products from
Type 1 firms.
Transparency
Another possible impact for all insurance companies will be that the claims
adjudication processes will be more transparent and easier to administer in
future. Companies will no longer have to analyse FOS guidance to work out
what its approach might be (FOS decisions are not published although it does
provide newsletters explaining its approach with examples) and this may
provide savings to insurance companies through decreasing costs associated
with staff training in the longer term.
This will only be the case after the initial bedding down of the proposals as
the changes to the legislation being proposed will not apply retrospectively
and there will be a dual system of claims assessment in the first few years
post introduction though this will only really apply to those types of
insurance that are not renewed on an annual basis. Even for those types of
insurance policy that are not renewed on an annual basis, insurance
companies may opt to encourage all outstanding policies to be administered
under the new regime following the introduction of these reforms to ensure
the greatest cost efficiencies may be achieved.
Summary of Impacts
We have summarised the primary outcomes of the proposed legislation on
Type 1 firms as follows:
London Economics
June 2007 37