Bid to make insurance cover fairer
Updated on 17 July 2007
The century-old law governing insurance policies needs to be updated to make it easier to understand and fairer to consumers, the Law Commission said.
It has put forward a series of proposals focusing on what happens when people make mistakes in application forms and fail to disclose information to insurers.
The Law Commission said the current rules imposed a heavy duty on people applying for insurance to volunteer information on anything that would influence an underwriter's decision.
It said this may include information that people would have no idea was relevant, such as disclosing whether they had any County Court Judgements when applying for household contents insurance.
The Commission warned that this duty of disclosure could "operate as a trap", while the penalty could be "overly harsh", as it could lead to an insurer refusing all claims, even if the information that was not disclosed was not relevant to the claim.
It said there had been a case where a claim for leukaemia on a critical illness policy had been turned down because the policyholder had failed to disclose a hearing loss, even though this was unrelated to the leukaemia.
The Commission also called for the law of warranties to be reformed to make it fairer to consumers.
A warranty is an undertaking by a consumer to do or not do something in the future, for example to have a working burglar alarm on their house.
But the Commission said under strict law, someone could have a claim turned down for failing to keep to their warranty.
The review also found that consumers were bearing the consequences of mistakes made by financial intermediaries who helped them fill out application forms. The Commission said the industry was aware the current law, which dates back to 1906, was "outdated and inappropriate" for the modern consumer market, and had compensated for this with codes of practice.
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