The Association of British Insurers' (ABI) new guidelines on non-disclosure for protection produ...
The Association of British Insurers' (ABI) new guidelines on non-disclosure for protection products is a significant improvement for consumers. The overriding principles are that "the severe remedy of declining a claim by cancelling the policy from the outset should be confined to the most serious cases of non-disclosure", and that a proportionate remedy should be applied so that the outcome should be the same as if the non-disclosure had not happened in the first place. So let's have a look at some of the detail.
First, the categories of inadvertent and clearly reckless non-disclosure have been merged back to the old category of negligent non-disclosure. However, all is not quite as it seems, because a category of non-disclosure that would still result in an automatic decline - deliberate non-disclosure - has been expanded to include "without any care". It will be interesting to see how this works, for example, the Financial Ombudsman Service gave an example where an applicant had done their best to provide the right information but was not able to understand the questions.
For IFAs, a key change is that where a non-disclosure results from their omission, as opposed to their action, they are liable. This will put IFAs under a great deal of pressure to capture everything that was said - for example, by recording their conversations.
The ABI has made a welcome change to the concept of severability of contracts for two or more products by making total permanent disability severable, typically from critical illness (CI). However, income protection (IP) has not been treated this way, and as most IP claims are for bad backs or stress, the problem of unlinked "non-serious" conditions will remain. This also raises a question over the warnings that are issued if, for example, IP is sold as a single contract with CI.
Finally, there are three areas that are not tackled. The continuing duty of disclosure still remains, and the guidance saying that insurers must have a "robust case" for using this, but I doubt that any consumer understands what this means. There is also no mention of joint-life policies. Some companies not only turn down the policy of the deceased in the event of a serious non-disclosure, but also terminate the innocent spouse's life cover - a practice I doubt any bereaved person could understand. Last, there is the non-contestability period advocated by the Law Commission Report. This has disappeared without trace - gone but not forgotten, I suspect.
Richard Walsh is managing director of SPPR Consulting
