The ABI and the Consumer
Insurance (Disclosure and
Representations) Act 2012
Judith Crawford
Association of British Insurers
Contents
• Consumer Insurance Act: history and overview
• ABI implementation work: question sets, claims
and updating documentation
• Common questions: additional premium, RTA,
mid-term variations
• What’s next on the horizon
The Act: a long time coming…
• 1906: Marine Insurance Act
• 1977 (replaced in 1986): Statements of General
Long-Term Insurance Practice
• 2001: Financial Ombudsman Service (FOS)
• 2005: FSA Regulation and ICOBS
• 2006: Law Commission review - scoping document
• 2009: ABI Code of Conduct for long term protection
policies
• 2012 Consumer Insurance Act (implementation 6th
April 2013)
The Act: Quick overview
• Applies to all consumer insurance
contracts/policies
• Places a duty on consumers to take “reasonable
care” not to make a misrepresentation
Consumer
breach of
“reasonable
care”
Insurer had
been
“induced” into
the contract
“qualifying
misrepresentation”
– insurer access to
remedies
What does it change?
The consumer’s duty to disclose information
is replaced by
A duty to take “reasonable care” not to make a
misrepresentation
This means: consumers will no longer have a duty
to disclose anything they have not been asked.
What does this mean in practice?
If misrepresentation/non-disclosure is discovered,
first ask why. Three options :
– The consumer took reasonable care, answering
the questions to the best of their ability
– The consumer was careless in responding to the
questions they were asked, or
– The consumer deliberately or recklessly
misrepresented the facts
What is reasonable care? (S.3)
The Act sets what should be considered when deciding
whether or not the consumer took reasonable care:
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–
–
–
–
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the type of consumer insurance contract, and its target market,
any relevant explanatory material or publicity produced or
authorised by the insurer,
how clear, and how specific, the insurer’s questions were,
If the consumer has not responded to questions asked at
renewal or variation of the contract, how clearly the insurer
communicated the importance of answering those questions
(or the possible consequences of failing to do so),
whether or not an agent was acting for the consumer
If the insurer was, or ought to have been, aware of any
particular characteristics or circumstances of the actual
consumer.
What is deliberate or reckless? (S.5)
• Move away from the use of the word “fraud” because
of the criminal implications
• The consumer has behaved deliberately or recklessly if
they:
(a) knew that their answer(s) was untrue or misleading, or did not
care whether or not it was untrue or misleading, and
(b) knew that the information they misrepresented was relevant to
the insurer, or did not care whether or not it was relevant to the
insurer. If the insurer has asked for particular information, it can be
presumed (unless the contrary is shown) that the consumer knew it
was relevant to the insurer
• The burden of proof is on the insurer to show that the
consumer was being deliberate or reckless.
What is careless?
• Everything in-between!
• A misrepresentation is careless if you can
show that the consumer did not take
reasonable care, but neither were they
deliberate or reckless.
Inducement
Consumer
breach of
“reasonable
care”
Insurer had
been
“induced” into
the contract
“qualifying
misrepresentation”
– insurer access to
remedies
If a breach of “reasonable care” has taken place, the
insurer also has to show that, had they known the
correct information from the start, they would not
have taken on the contract on those terms i.e. they
were “induced” into the contract.
What does this mean for claims?
If either a breach of reasonable care or inducement
cannot be proved:
 Insurer pays claim if covered by the contract terms
If misrepresentation was reckless or deliberate:
 insurer can avoid policy and keep premium
If misrepresentation was “careless”:
 Proportionate remedy based on what the insurer
would have done had the misrepresentation not
occurred
What is the proportionate remedy?
If the risk would not have been taken on
 avoid claim and return premium
If other conditions would have applied
 apply these to the claim
If a higher premium would have been charged
 reduce claim by a proportionate amount
Other changes
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Ban of “basis of the contract” clauses
Group insurance policies
Life insurance on behalf of another
Agency status of intermediaries (Schedule 2)
Definition of a consumer contract:
– “mainly or wholly for purposes unrelated to the
individual’s trade, business or profession” (S.1)
Questions?
Overview of ABI work
• April 2012: ABI event on implications of the CIA
• June 2012: ABI implementation working group :
1. Work with insurers and distribution partners on
point-of-sale practices
2. Understand how to treat claims
3. Ensuring FCA/ABI/FOS codes, rules and guidance are
consistent with the Consumer Insurance Act
1. Point-of-sale
• “Reasonable care” takes into account:
– Relevant explanatory material or publicity produced or
authorised by the insurer (S 3 para 2b)
– How clear, and how specific, the insurer’s questions were
(S 3. para 2c), and
– How clearly the insurer communicated the importance of
answering those questions (or the possible consequences
of failing to do so) – for renewals (S 3 para 2d)
• Evidence from the FOS on common non-disclosure
complaints
• ABI Recommendations published December 2012
ABI RECOMMENDATIONS
Default answers
• Default answers can provide benefits to
consumers (e.g. speed).
• However, they are more likely to lead to
misrepresentation.
• Care should be taken to reduce the use of
default answers.
Help text
• Insurers may not always be able to rely on
help texts.
• Consumers should not be expected to take
positive action to be able to view help text.
• It is best to have help text that automatically
pops up without requiring positive action from
consumers.
Assumptions
• Things to avoid include having long lists of
assumptions, putting assumptions in the
Terms and Conditions pages on the website.
• Consumers should be asked to confirm that
the assumptions are correct.
• Warning notices highlighting the
consequences of incorrect assumptions can
also be helpful.
Rolled-up questions
• Rolled-up questions are more likely to lack
clarity.
• They also have a higher tendency to confuse
consumers.
• Consumers find it more difficult to answer
accurately where their answers are different.
Warning notices
• Consumers should be reminded about the
importance of taking care to answer questions
accurately.
• This should be done at the start of the sales
process
• Warning notices should also highlight the
potential repercussions of making a
misrepresentation.
Conclusion
Consumer demand for quick sales processes
must be balanced with the need for full and
accurate disclosure.
2. Treating claims
• Claims scenarios
• Law Commission input
• FOS seminars for motor, property, travel and
protection claims handlers
• FOS Technical Note on Non-Disclosure
3. Updating Rules and Guidance
• ABI Code on Non-Disclosure and Treating
Customers Fairly for Long-Term Protection
Products
• FOS technical note
• FCA to consult on changes to rules
• Insurer and broker changes to documentation
Common queries
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Third party claims – Road Traffic Act
Underinsurance
Additional premium
Misrepresentation where no claim is involved
Definition of consumer
Joint policyholders
Renewals
What’s next?
Law Commission review of:
• Law on warranties e.g. the requirement on a
customer to inform the insurer about any
changes to their circumstances,
• Law on Post-Contractual duties, such as paying a
claim on time, or remedies for fraud
• FCA Discussion Paper on Transparency , which
includes claims stats
• FCA Thematic Review on Claims