Group schemes could face greater scrutiny under new Insurance Act

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Employers and their staff could face more questions and demands for greater workforce information from insurers when taking out new policies or schemes in light of the new Consumer Insurance Act, insurers are warning.

The Act, which comes into force on Saturday, will put the onus on insurance providers to ask the relevant questions needed when setting up policies rather than depending on the customer to provide the information.

Previously consumers were required to disclose anything to insurers which might "influence the judgment of a prudent insurer" in fixing the premium or deciding whether to take the risk.

The Law Commission said this duty of disclosure may have acted as a "trap" for consumers, who were generally unaware that it existed.

While the legislation broadly applies to personal insurance, group schemes will also be affected, as all policyholders (the employer in many cases) will still be "under a positive duty to disclose and not misrepresent all material facts."

Expacare managing director Beverly Cook said that while the introduction of the Act will grant transparency to the customer, insurers may look for ways to safeguard themselves against things that they might have previously declined under the duty of disclosure.

"I think for group schemes it's really a question of looking at your policy wording to see if any changes have been made to do with duties of disclosure, if a policy is coming up for renewal and the insurers might be asking more questions about the insured members. So they'll be looking for that and if an employee is thinking of taking out a policy, certainly they could expect to be asked more questions."

Commenting on the change the Association of British Insurers said: "We want customers to take out insurance policies with the confidence that they are covered. By placing a legal duty on insurers to ask customers all relevant questions at point of sale, people will know exactly what they need to disclose upfront."

CMS Cameron McKenna head of insurance and reinsurance practice Ed Foss echoed Cook's comments on insurers safeguarding methods: "The insurance industry will now need to consider how the changes affect their business with a view to implementing any necessary changes as soon as possible given the imminent commencement date.

"There may well be some significant satellite litigation developing in the early operation of the Act, for example: to clarify what is "honest and reasonable" in terms of any misrepresentation; when is an intermediary for the purposes of the Act to be considered as agent for the consumer or insurer - who is to bear the financial risk of any error by the intermediary?"

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