Commission launches reforms to insurance disclosure rules

The Law Commission has published a draft Bill to reform the law of disclosure in consumer insurance contracts, putting insurers under a greater duty to ask specific questions rather than rely on consumers to volunteer information.

'The current law requires a consumer to volunteer information about anything which a 'prudent insurer' would consider relevant,' a commission spokesman said. 'This no longer corresponds to the realities of a modern mass consumer insurance market.

'Most consumers are unaware that they are under a duty to volunteer information. Even if they are aware of it, they usually have little idea of what an insurer might think relevant.

'It is clearly important that insurers receive the information they need to assess risks. Most insurers, however, now accept that they should ask questions about the things they want to know.

'Our draft Bill replaces the duty to volunteer information with a duty on consumers to take reasonable care to answer the insurer's questions fully and accurately.'

The spokesman said that where a consumer made a mistake on an application form, the draft Bill distinguished between mistakes which were 'reasonable' or 'careless' and those which were 'deliberate or reckless'.

Insurers must pay claims based on 'reasonable' misrepresentations. A 'proportionate remedy' is proposed for cases of careless misrepresentation, based on what the insurer would have done had it known the facts. Only in the case of deliberate or reckless misrepresentations can insurers refuse the claim.

The spokesman said the recommendations reflected good practice within the industry and the approach taken by the Financial Ombudsman Service.

'Our proposed reforms would, however, make the law simpler and clearer, allowing both insurer and insured to know their rights and obligations.

'Insurers would therefore be less likely to turn down claims unfairly, and consumers would have greater confidence in the insurance industry.'

The duty of disclosure in consumer and other insurance contracts is currently based on the Marine Insurance Act 1906.

The Law Commission will publish its proposals to reform the law of disclosure in commercial insurance contracts next year.