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How Does Consumer Insurance Act 2012 Affect Policyholder Choices

The Consumer Insurance Act came into force on 6th April 2013.  It gives customers more clarity on what information they need to disclose to their insurer when buying insurance.

With the advent of technology, today, almost all insurance products can be purchased online.

Having encountered several questions on the implications of the consumer insurance act 2012, we have created this Q&A to aid the understanding of the new development in the legal framework of the consumer insurance product.

It should be remembered that, prior to the onboarding of the consumer insurance act 2012, the insurers relied on the word of the insured under the principle of Utmost Good faith, under this, the policyholder was expected to give all information to the insurer, in good faith, that would allow the insurer to determine risk involved and a proportionate premium to charge.

The principle of Utmost Good faith can be traced back to the case of Cater vs Boehm (1766) and the marine insurance act 1906:

The policyholder is must to disclose all material facts to the underwriters, whether or not there is a formal requirement to disclose such facts,

Second, the policyholder has to make sure that every material representation made to the insurer before the insurance contract comes to life is factual.

The passing of the consumer insurance act 2012, and its enforcement from 06th April 2013, rendered the principle of utmost good faith redundant.

In the Consumer insurance act 2012, the act prioritizes the duty of reasonable care, which is realized by the policyholder taking maximum precaution not deliberately, carelessly or recklessly misrepresent information given to the insurer.

The insurer has in turn invested into technology and information gathering systems to enable them to be updated of the circumstances in the market and design the most relevant questions relevant to the policy in question and all intended to be answered correctly by the policyholder.

Here is our Q&A on what the changes mean for consumers:

What is happening?

From 6th April 2013, your insurer will have to ask you specific questions to obtain relevant information about your circumstances when you buy insurance. The Consumer Insurance Act will give the policy holder legal protection if they unknowingly give incorrect or incomplete information to their insurer. This means the insurer will not be able to decline a claim on the grounds off non-disclosure unless there is evidence of careless or deliberate misrepresentation.

Which policies will the Act apply to?

The Act will apply to insurance policies taken out for personal use, that is not related to business activity, or aid to business operation. This includes, home, car pet, travel, life, critical illness and income protection insurance, health insurance and pension annuities.

In that regard, the persons taking similar insurance products under business will do so under a different act: The insurance act 2015, which deals with non-consumer insurance policies, more about the insurance act 2015 will be in our next blog.

Will the Act apply to insurance bought online and via a price comparison website?

Yes, all personal insurance purchased after the activation of the act, will be regularized by the guidelines issued in the consumer insurance act 2012. This includes all personal insurance products purchased in person at the insurance providers premises, or online through their online platforms.

Remember that, all the questions presented online must be answered with reasonable care, with no intend to defraud the insurer, or to deliberately lie whatsoever. Lack of reasonable care automatically qualifies to carelessness.

Will there be much change?

We do not expect there to be a major change in the way insurers treat claims as their practices have gradually improved over the past 30 years because of industry initiatives to bring a consistent approach and make questions asked at point of sale clearer and unambiguous. The Act will set an industry wide standard.

In what circumstances can an insurer still decline a claim on the grounds on non-disclosure?

Under the Act insurers will still be able to decline a claim if it is found that a customer deliberately, recklessly or carelessly gave incorrect or incomplete information when answering questions about their circumstances, so you still have a duty to answer questions correctly. If you are uncertain on any answer, you should contact your insurer broker, or other seller of insurance.

How do I know if I am being ‘careless’, ‘deliberate’ or ‘reckless’ when answering questions from my insurer?

The Act describes each of these concepts and will generally expect you to take reasonable care to avoid misrepresenting your circumstances when answering questions. This means ensuring you do not give information to your insurer that you know is untrue or misleading.

How will the Act affect insurance renewals?

The Act will also apply to insurance renewals after 6th April. You will have a duty to check your renewal notice and notify your insurer if the information held about your circumstances has changed or is incorrect. Some renewal notices often ask customers to check that specific important information is correct.

We hope this information was helpful, we at Observater Surveys and Services Limited, wish you success in your choice of relevant insurance products:

Observater remains committed to offering reliable claims investigations and handling. As you take up your insurance, we encourage you to remain safe, and careful, however, should there be the unfortunate occurrences/ injury, please feel free to consult with us on the processes of claims handling at any given time.