Law Commission: Body's proposal attracts widespread mix of criticism and indifference from protection community
By Johanna Gornitzki
The Law Commission's proposal to introduce a non-contestability clause for life cover only could end up harming the industry, experts have warned.
The news came after the industry branded the non-contestability period proposed by the Law Commission as "pointless" after it was revealed that it would only cover term assurance policies, also affecting life cover with accelerated critical illness (CI).
The Law Commission's latest consultation paper, entitled 'Insurance Contract Law: Misrepresentation, Non-disclosure and Breach of Warranty by the Insured' and published on 17 July, has proposed that life insurers should introduce a five-year cut-off period for when they can decline a claim due to non-disclosure.
However, life insurance is the only insurance product in the whole protection range that has been included in this proposal, despite CI insurance being the protection product mainly associated with the problems of declined claims. This will mean the cut-off clause would only apply to the life cover even when CI is attached to it. As the report stated: "In policies that involved both life cover and CI cover, the cut-off period would apply only to claims made after death."
Rod McKie, head of marketing for protection at Aegon Scottish Equitable, said this could have huge implications on the industry. "You may have to end up separating all these policies," he said.
Also commenting on the proposal, Kevin Carr, head of protection at LifeSearch, added: "This could end up doing the industry more harm than good."
Looking at the proposal overall, Mark Locke, spokesperson at Aegon Scottish Equitable, said: "Over 90% of life insurance claims are paid anyway so this proposal wouldn't have a great impact on consumers."
Agreeing with Locke, Nick Kirwan, head of health and protection at the Association of British Insurers, added that he was "disappointed" with the latest proposal.
"I am much less enthused about the proposal now than before. As it currently stands, it is just for life and I don't think that's where the major issues lie. It is important that the treatment of non-disclosure is fair and not just perceived as fair. I don't think the proposals from the Law Commission will do it."
He added: "The Law Commission has obviously been listening to some of the concerns highlighted by the industry, but looking at the new proposals, what's the point?"
The Law Commission originally included the whole suite of protection products into its proposal when it published its first issue paper on non-contestability last autumn.
However, pressure from the reinsurance industry forced it to back down, it has been suggested.
Several sources, who have been keeping a close eye on the Law Commission's proposal, indicated the threat of extra cost and added layers of underwriting incurred by including other protection products in the proposal had pushed the Law Commission into changing its stance.
However, Michelle Bramley, a practice development lawyer at the Law Commission, commented: "I think the consultation paper has attempted to clarify how the proposed cut-off period should apply where policies provide both life cover as well as CI cover, in other words, the cut-off period would apply only to claims made after death. I don't think the Law Commission has changed its position on this in the consultation paper, merely clarified how it would operate for more complex insurance products."
The consultation ends on 16 November 2007.
n For further coverage on this issue, see page 9.
