Legal changes to consumer insurance

The Consumer Insurance (Disclosure and Representations) Act 2012 (“the Act”) applies to individuals taking out insurance wholly or mainly for purposes unrelated to their trade or business. The aim of the Act is to increase consumer protection and reduce costs for the insurance industry.

One of the main legal changes that the Act introduced in  2012 is the abolishment of the consumer’s duty to volunteer information to the insurer. Instead, insurers are now required to obtain specific information about their customers before an insurance policy can be issued. Therefore, insurers will need to ensure that they ask for any specific information that they require in order to assess the risk being insured against. The consumer’s duty is now limited to making sure that they answer the insurer’s questions honestly and reasonably.

The insurer will be able to refuse a claim if they can prove, on the balance of probabilities, that the consumer deliberately or recklessly misled them. The insurer will also need to prove that the consumer knew that the matter was relevant to the insurer, or did not care whether it was relevant or not.

Other provisions introduced by the Act:

• The Act abolishes “basis of contract” clauses, which means that the consumer’s statements will not automatically be regarded as warranties.
• Any misrepresentations made by a member of a group insurance policy will only have consequences for that one member, rather than the policy as a whole.
• If the subject of a life insurance policy, who is not party to the contract, makes deliberate or careless misrepresentations, an insurer will have the normal remedies.

Insurers are prohibited from contracting out of the effects of the Act. 

As a result of these changes, consumer insurance law has shifted in favour of the consumer.