Leading City of London insurance lawyer writes that, based on the UK experience, recent legislation introduced by Pearse Doherty TD supporting consumers’ rights in the area of insurance claims payouts is ultimately positive for the industry as well.
Written by Stephen Netherway, Partner and Head of the Insurance Sector in the UK for CMS, a London and European law firm.
When Brexit was just a twinkle in the political eye, both the UK and Ireland began to seriously review the potential reform of insurance law for consumers.
In Ireland this manifested itself first in the publication in 2015 by The Law Reform Commission of Ireland report [embedded below] recommending new consumer legislation to remove ‘vicious devices and traps for the unwary’ from insurance contracts.
Most recently, last month, and moving on from that report, Sinn Féin finance spokesman Pearse Doherty introduced the Consumer Insurance Contracts Bill 2017 [embedded below], which was expressly presented as seeking to enhance consumer protection when taking out insurance, and which is now to proceed to committee stage.
Key Points of Bill
- A key provision of that Bill was to seek to shift the burden of disclosure of pre-inception material facts away from the consumer and onto the insurer and introducing a statutory duty upon a consumer to answer questions carefully and honestly.
- Effectively the insurer will be required to ask the relevant questions it needs to elicit the material information it truly requires to underwrite and assess the consumer’s risk.
- Additionally it will restrict the insurers’ legal abilities to invoke warranties sought to be in policy terms or in questionnaires or proposal forms to deny claims for incident breach, irrelevant to the risk of the loss arising for which a claim may be submitted by the consumer.
- Provisions for damages for late payment of claims, and allowing part of claims to be paid if there has been honest breach by the consumer of his statutory duty are also addressed.
Similar Legislation in UK
The UK is well ahead of this curve as specifically similar legislation is already in force that seeks to protects consumers in that jurisdiction.
The Consumer Insurance (Disclosure and Representations) Act 2012 that came into force on 6 April 2013 also removed the duty of disclosure upon individual consumers, replacing it with the similar type of obligations upon insurers to ask questions that was presented in the draft Irish bill last month, and provided for proportional claims payment remedies.
Further complimentary provisions found in the subsequent Insurance Act 2015 which came into force from 12 August 2016 also means those other intended provisions in the Irish bill are now operative and are protecting consumers in the UK.
So what changes and reactions in the market in the UK were seen with these same styled consumer reforms -and what may be seen in the Irish market if this bill becomes law?
It is worth bearing in mind that the professed aim of the reforms was to see more consumer claims paid in the UK.
It may surprise, however that there has been no seismic shock to the UK personal lines market by the passage of these reforms.
Principally this appears to be because because insurers selling consumer insurance in the UK have for a long time been operating subject to the awards and therefore the effective direction of the UK equivalent of the Financial Ombudsman service that one sees in Ireland, as well as determining claims in accordance with various industry protocols and agreed standards.
‘Ridiculous’ examples of insurance pay-out refusals
These benchmarks already effectively required insurers to move away from the types of ‘ridiculous’ example that the Law Commission President, retired High Court judge Mr Justice John Quirke, told The Irish Times of an insurance company refusing to pay out household insurance after a fire on the basis, for example, that the householder did not have a burglar alarm.
Insurers could not stay on the right side of the line drawn by the Act without (as they had done already);
- being careful to show they had asked the right questions of consumers,
- had written policies and particularly exclusions clearly,
- did not and would not take strict points on general and factually irrelevant warranties.
If they had strayed in these areas, the Ombudsman would correct them as their expense and the complaining consumer’s benefit.
Indeed some wondered why the consumer legislation was necessary to implement in the first place given that the reliance on the Ombudsman service in the UK was always thought likely to continue.
This has indeed proven to be the case, with there being no significant body of case law generated under the 2012 Act as UK consumers continue to invoke the services of the Ombudsman, which is free, rather than resorting to the courts and attracting personal legal cost and cost risk.
At the end of the day though, it was quite powerfully argued that proper consumer protection and de facto industry and Ombudsman principles should be out on a sound legal footing.
That has real force and it carried the day but arguably this restatement has also had a further beneficial impact upon the UK market more generally by helping to restore and even increase consumer confidence in purchasing policies relating to motor, health, travel and property. The value in these products and greater understanding of the statutory support for fair dealing has been given solid legal foundation.
A ‘win-win’ for insurance providers and customers
The change in legislation in the UK therefore has real win-win scenarios for both insurers selling policies and the consumers who seek them out.
All of this can, and should be repeated in the Irish insurance market. With its functioning Ombudsman system, there should also be no major shocks or changes required to major insurer players who are cognisant of what the Ombudsman requires them already to abide by in terms of fair dealing with consumers and claims payouts.
As a postscript, what may be more interesting is whether this reform spawns an appetite for much wider reform, into commercial insurance, which was also the focus of the Insurance Act 2015. Time will tell and the narrative on how such wider reforms now in place in the UK are now playing out is being separately written.
Experience across the Irish Sea therefore shows such a bill will have or should have no such cataclysmic shocks to the Irish insurance market and can only help enhance consumer confidence and their appetite to purchase such policies.
It will re-emphasize to insurers that they must double up their attempts to issue policies in plain language, that reasonably meet a consumer’s expectations in terms of what risks will be covered and what types of claims should be paid.
With the potential for increasing consumer confidence in the products they sell, that’s not a bad trade off in current climes: no Big Bang, but a Real win-win Deal!
Consumer Insurance Contracts Report 2015 – Law Reform Commission (this report presaged the 2017 Bill introduced by Pearse Doherty, the full text of which is also embedded below).
Consumer Insurance Contracts Bill 2017