Clients will be entitled to damages if insurers fail to pay claims promptly, according to the latest proposal by the Law Commission.
It also proposed to widen the scope for which life insurance policies may be taken out to cover another person, including children and cohabitants.
As COVER reported, the move to allow damages was first consulted on last year and is supported by the ABI and much of the insurance industry.
It would bring English law into parity with that in Scotland and match industry practice as required by industry regulators including the Financial Ombudsman Service (FOS) and FSA.
The Law Commission is proposing the insurer's primary obligation should be ‘not as a duty to prevent loss but to pay valid claims after a reasonable time.
‘An insurer who unreasonably delays or wrongfully repudiates a claim should be liable to pay damages according to normal contract law principles.'
It suggested that the reasonable timescale should be flexible and include sufficient time for full investigation and assessment of the loss.
Once the investigation is complete, the Commission added, the insurer should assess the claim and communicate its decision promptly, a similar principle to the current FSA rules.
Regarding life insurance reforms, it proposed to widen the test of economic dependency to become a factual test of whether there is a real probability that the proposer will retain an economic benefit on the preservation of the life insured, or incur an economic loss on the death.
‘This would enable people to insure the lives of family members where they are dependent on them and would suffer a loss if they died,' the Commission noted.
For children, the consultation noted that products with a cap of around £30,000 already existed and agreed that these should be regularised.
It proposed that: ‘parents should be entitled to take out insurance on the life of a child under 18. We ask if there should be a cap on the amount, and if so, what it should be.'
It also proposed that cohabitants should be entitled to insure each other's lives without evidence of economic loss if they have lived in the same household as husband and wife or as civil partners for the whole of five years before the policy is taken out.
The consultation closes on 20 March 2012.
