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

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Section 6 Case Study - Critical Illness Cover 6.1.2 Consumer policies The information on the number of policies sold annually varies depending on the source. For instance, CRA (2006) estimate that there are 275,000 new critical illness policies sold annually, while information from the ABI indicates that there were approximately 403,000 policies in force in the United Kingdom in 2005. Information from a survey (Norwich Union, 2005) indicates that the number of critical illness policies sold in 2005 stood at 511,984. In our case study below, we have assumed that the proposed changes to nondisclosure and misrepresentation will apply to the 511,984 policies that were sold in the last year for which information exists. 6.1.3 Firms Information from the ABI indicates that in the critical illness market, the top 5 providers account for approximately 60% of sales. The top 10 providers account for almost 79% of sales and the top 20 providers account for approximately 93% of sales (or 476,145 policies). For the purposes of this analysis and subject to the previous caveats, we have assumed that 93% of policies are sold by firms that are Type 1 firms with the remaining 7% of policies (or 35,839) being administered by Type 2 firms. 6.1.4 Average Premiums We have not been able to access accurate information on the average critical illness premium in the market given the very wide range of products available. However, given the fact that the average claim paid is approximately £73,000 and that premiums broadly range from £20 to £35 per month (per £100,000 insured), we have estimated that the average monthly premium for critical illness insurance is £27.92 per month per £100,000 insured, which is equivalent to £244.58 per annum to insure the average claim size of £73,000 15. We also assume that Type 2 firms on average offer premiums that undercut those premiums offered by Type 1 firms by 5% all other factors being equal (£232.35 per annum). 15 From information presented in Cockburn, (2006), we have taken the average monthly premium paid by individuals presented in Tables 4 and 5. The annual premium for Type 1 firms is calculated as follows: £27.92 * (0.73) *12 = £244.58 London Economics June 2007 41
Section 6 Case Study - Critical Illness Cover 6.1.5 Elasticity of demand Given the relatively complex nature of the product being sold and the fact that critical illness products are often sold as a tied product to mortgages, we have assumed that the elasticity of demand associated with critical insurance products is relatively low - in the region of -0.25. In other words, if the price of critical insurance increases by 10% the quantity demanded of critical illness insurance will fall by 2.5%. We also assume that the reduction in critical illness insurance resulting from any increase in premiums occurs through some individuals no longer purchasing policies rather than all individuals marginally reducing the extent of their coverage. 6.1.6 Claims There is no specific information on the number of critical illness claims annually. However, we have estimated that the number of claims in the critical illness market annually is 17,585. This is based on evidence from one of the top 5 providers in the marketplace (accounting for just under 9% of total sales) indicating that they received 1,500 claims in 2005 16. Assuming that all firms in the marketplace have an equal likelihood of receiving a claim, the total number of claims for the market as a whole is estimated to be in the region of 17,585. This corresponds to approximately 3.4% of total policies sold annually. 6.1.7 Average Payouts There is no market-wide information on the average payout in the critical insurance market. However, data from one insurer within the top 5 providers nationally indicates that their average payout was approximately £73,000. We have assumed that this figure is representative of the market as a whole and have assumed that there is no change in the average size of claims before and after the proposed reforms. 6.1.8 Non-disclosure and misrepresentation The likelihood of claims payment very much depends on the type of insurer. From the specific company evidence available, the proportion of CIC claims paid out ranges between 72% and 90%. The average proportion of claims paid out is approximately 80% 17. For the later analysis, we have assumed that the average likelihood of CIC claims payment (over the entire market) is 80%. 16 The actual market share of this provider is 8.53%. Therefore 1,500/(0.0853) = 17,585 17 This information is presented in Table 8 in Chapter 4. The actual percentage used in this analysis is 79.9%. London Economics June 2007 42
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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
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Contracting out of the default regi
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Consumer insurance: “joint lives,
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12.68 If the voyage conditions are
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ASSESSING THE COSTS AND BENEFITS OF
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THE STATEMENTS OF PRACTICE 1977 A.4
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Voluntary measures unsatisfactory A
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Page 373 and 374: APPENDIX C THE FOS APPROACH TO ISSU
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Page 397 and 398: The overall success rate C.107 The
Page 399 and 400: Institute of Actuaries Healthcare C
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