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

Section 6 Case Study - Critical Illness Cover
The aggregate impact on consumers is estimated to be £0.470 million per
annum; however, the impact of these proposals affects consumers quite
differently depending on their characteristics.
It is not possible to exactly predict the impact of these proposed reforms on
all consumers. Honest consumers are likely to be better off as a result of
having claims paid (which may not have been previously the case), as well as
benefiting from regulation per se. Consumers that deliberately and recklessly
misrepresent and are detected doing so will be worse off as a result of these
proposals due to the fact that insurance companies will have the right to
retain these premiums confirmed.
We estimate that the wider benefits accruing to both consumers and firms
associated with a reduction in dispute resolution are estimated to be £0.391
million per annum.
The aggregate recurring economic benefits of these proposals on the critical
illness market are estimated to be in the region of £0.862 million to £1.120
million per annum depending on the costs associated with recurrent
administration costs. This is presented in the Table below.
This aggregate estimate is driven by the large impacts on consumers and in
particular, the large positive impact on consumers that are honest in the
claims they bring to some insurance companies and the large negative impact
on those consumers that deliberately or recklessly misrepresent.
Excluding the impact on consumers, the aggregate impact on firms through
the increase in the claims paid, fraudulent premiums retained, increased
premiums charged; recurrent administration fees and avoidance of disputes
(which benefit firms and consumers) is relatively cost neutral on an ongoing
basis.
London Economics
June 2007 55