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Discussion about insurers and the Consumer Insurance Act

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See section 4 1 b) under misrepresentation.

 

This talks about the Insurers being able to use misrepresentation, when they would not have offered Insurance.

 

So the consequence of this, is that if Insurers underwriting would allow cover under the real situation that exists, they cannot really use the misrepresentation against the policyholder.

 

I hope you see what I mean. I am using a ipad mini so difficult to copy stuff across. The way these laws are writren requires interpretation.

 

4Qualifying misrepresentations: definition and remedies

 

(1)An insurer has a remedy against a consumer for a misrepresentation made by the consumer before a consumer insurance contract was entered into or varied only if—

(a)the consumer made the misrepresentation in breach of the duty set out in section 2(2), and

(b)the insurer shows that without the misrepresentation, that insurer would not have entered into the contract (or agreed to the variation) at all, or would have done so only on different terms.

(2)A misrepresentation for which the insurer has a remedy against the consumer is referred to in this Act as a “qualifying misrepresentation”.

(3)The only such remedies available are set out in Schedule 1.


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I'm sorry but Dacouc's point at his post no.15 was that if there is a defect of some kind on the insurance application then the insurer is obliged by some provision in this recent Act to accept additional premium and is then obliged to pay out for the insured peril.

 

If you discover Markerstudy would have insured you had the correct information been declared but at a higher premium and / or with other terms applied to the Policy then they're obliged to deal with the claim subject to you paying the extra and / the terms being applied or they can adjust the total loss payment accordingly. Again providing they were not miss led.
This is extremely philanthropic stuff because it basically means that a policyholder can remedy a flawed contract by paying, say, a further £250, and in return the insurer must the stump up say, £10,000 to cover the loss incurred as a result of the occurrence of the insured peril.

 

I'm looking hard at the statute, but I don't see it.

 

Furthermore, even if Dacouc has erred in his interpretation of the statute - hardly likely, I know, - UncleBulgaria, who has a great deal of experience working in the insurance industry, has told us in his post no.20 that this is an occasional practice which is already established within the industry as the result of some code - written or unwritten, I'm not too clear. I have already indicated in my post no.21 that this is great news.

 

Maybe I could come straight out and ask UncleBulgaria whether he agrees with Dacouc that the statute in question obliges insurers to accept retrospective premiums to cover perils which have already occurred?

If Dacouc is right - then I really would like to have it explained to me please


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I'm sorry but Dacouc's point at his post no.15 was that if there is a defect of some kind on the insurance application then the insurer is obliged by some provision in this recent Act to accept additional premium and is then obliged to pay out for the insured peril.

 

This is extremely philanthropic stuff because it basically means that a policyholder can remedy a flawed contract by paying, say, a further £250, and in return the insurer must the stump up say, £10,000 to cover the loss incurred as a result of the occurrence of the insured peril.

 

I'm looking hard at the statute, but I don't see it.

 

Furthermore, even if Dacouc has erred in his interpretation of the statute - hardly likely, I know, - UncleBulgaria, who has a great deal of experience working in the insurance industry, has told us in his post no.20 that this is an occasional practice which is already established within the industry as the result of some code - written or unwritten, I'm not too clear. I have already indicated in my post no.21 that this is great news.

 

Maybe I could come straight out and ask UncleBulgaria whether he agrees with Dacouc that the statute in question obliges insurers to accept retrospective premiums to cover perils which have already occurred?

If Dacouc is right - then I really would like to have it explained to me please

 

Call it a lucky guess, but I think Uncle will agree with me re the legislation.

 

When Uncle describes it as an "occasional act" I think he will confirm that it's not occasional in that sometimes the Insurers will do it and sometimes they won't, what he means is the circumstances that it occurs eg non deliberate non disclosure and the Insurer would have accepted the business had the correct information been declared at a higher premium is not common.

 

The Ombudsman has basically followed this path for a long time.

 

"The Act has not changed the way we look into cases about misrepresentation and non-disclosure - because the law now reflects the approach we were already taking."

 

"So if the insurer would have accepted the risk but charged the consumer a higher premium, we usually say that the insurer should consider the claim. If the claim is valid, the insurer should pay it in proportion to the premium that was actually paid. For example, if the consumer had been paying half the premium they should have, then we will say the consumer should get half the settlement if the claim is accepted.

 

However, if the insurer decides to charge the additional premium and settle the claim in full instead of settling the claim proportionately, we may also decide this is fair - provided the insurer deducts the additional premium from the claim settlement and does not put the consumer in a worse position than they would be in with a proportionate settlement."

 

http://www.financial-ombudsman.org.uk/publications/technical_notes/misrepresentation-and-non-disclosure.htm

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You still haven't quoted the words in the Act which you are relying on. It would be really helpful if you would.

 

Not only that, if it is the law - as you say it is, then insurers would not be entitled to treat it as "an occasional act". There would be no discretion in it.

So please quote the words. I think that it will be very helpful to everyone


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"Careless misrepresentations—claims

 

3 If the qualifying misrepresentation was careless, paragraphs 4 to 8 apply in relation to any claim."

 

http://www.legislation.gov.uk/ukpga/2012/6/schedule/1/paragraph/3/enacted

 

"Careless misrepresentations—claims

 

 

4 The insurer’s remedies are based on what it would have done if the consumer had complied with the duty set out in section 2(2), and paragraphs 5 to 8 are to be read accordingly."

 

http://www.legislation.gov.uk/ukpga/2012/6/schedule/1/paragraph/4/enacted

 

"Careless misrepresentations—claims

 

5 If the insurer would not have entered into the consumer insurance contract on any terms, the insurer may avoid the contract and refuse all claims, but must return the premiums paid."

 

http://www.legislation.gov.uk/ukpga/2012/6/schedule/1/paragraph/5/enacted

 

4 Being the most relevant section to this discussion

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Thank you, but this has nothing to do with your proposition in post 15.

 

Nowhere does this say or even suggest that the consumer can remedy the defect by paying extra premiums and then have the benefit of a perfected contract if insurance.

In fact this words you have quoted even make it clear that the sections provide for remedies for the insurer - not remedies for the consumer.


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Thank you, but this has nothing to do with your proposition in post 15.

 

Nowhere does this say or even suggest that the consumer can remedy the defect by paying extra premiums and then have the benefit of a perfected contract if insurance.

In fact this words you have quoted even make it clear that the sections provide for remedies for the insurer - not remedies for the consumer.

 

The legislation is another example of law written, so it is open to argument.

 

It has been practice for a very long time for Insurers to forgive policyholders mistakes, as in the example i gave earlier, but it was discretionary. Even with the new law, i suspect you could have situations exactly the same treated differently by Insurers or even staff within the same company.

 

i don't know whether there have been court cases using the new law or FOS decisions based purely on it.


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I'm not going to comment on what you tell me is industry practice. However, it is quite wrong to say that there is any such provision in the Consumer Insurance Act and particularly as no one has been able to pint to the statutory provision in question, it is unhelpful to say that there is such a provision.

Some people might even believe it.


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It is always going to be each case on is own merits, trying to imterpret the situation in regard to usual practice or law.

 

I am trying to think of examples where you might expect an Insurers to accept a claim, but apply backdated underwriting.

 

A policyholder mistakenly does not disclose modifications in regard to a used car they bought. They did not realise that there were modifications and thought they were standard factory fitted items. The Insurers receive a total loss accident claim and their engineer reports the modifications. The modifications do not affect the risk as ok under underwriting guidelines, but affect the market value and there would have been an additional premium due. Would the Insurers include the modifications and pay the increased market value, subject to the additional premium being paid ? Not sure the law tells the Insurers what they have to do.


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I'm not going to comment on what you tell me is industry practice. However, it is quite wrong to say that there is any such provision in the Consumer Insurance Act and particularly as no one has been able to pint to the statutory provision in question, it is unhelpful to say that there is such a provision.

Some people might even believe it.

 

I think it is useful to know law exists, but that it does not offer a definite guarantee of what consumers should expect. They would have to make the argument, based on their individual case.


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Schedule One of the CIA 2012 concerns the remedies available to insurers.

 

In the event of a careless misrepresentation where the insurer would have taken on the business, subject to a different premium, the act provides for

 

In addition, if the insurer would have entered into the consumer insurance contract (whether the terms relating to matters other than the premium would have been the same or different), but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.

 

So if the premium charged was £100 but would have been £200 then the insurer can pay 50% of a claim.

 

That said, it is common in the industry to just charge the additional premium and not reduce a claim payment - but it's not an automatic right to my knowledge

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Schedule One of the CIA 2012 concerns the remedies available to insurers.

 

In the event of a careless misrepresentation where the insurer would have taken on the business, subject to a different premium, the act provides for

 

 

 

So if the premium charged was £100 but would have been £200 then the insurer can pay 50% of a claim.

 

That said, it is common in the industry to just charge the additional premium and not reduce a claim payment - but it's not an automatic right to my knowledge

 

In my post about car mods, how would you deal with this.

 

The mods not disclosed increased market value by £1000. The additional premium would have been £100.

 

Would the Insurers pay the market value without including the mods.

 

Would they backdate the mods, pay the increased value, subject to the additional premium being paid.


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Explanations of the new law

 

"If the insurer would have imposed different terms (other than relating to premium), it may choose to treat the contract as if those terms applied. If, for instance, it would have included a particular exclusion and the claim falls within that exclusion, the insurer will not be obliged to pay the claim. And where the insurer would have charged a higher premium, any claim under the policy can be reduced proportionately."

 

http://www.out-law.com/page-11391

 

"40. If, in the absence of a breach of the Duty, the insurer would have written the risk, but

on different terms, the contract will be treated as if it had been written on those

terms.

45 That does not include terms relating to the premium. Effectively, this means

that the courts will rewrite the contract – on the basis of what the underwriter would

have written if he/she had received a fair presentation of the risk. "

 

 

This link has a good explanation of the new law http://www.7kbw.co.uk/media/uploaded_files/Guide_to_the_Insurance_Act.pdf

 

For the record, these practices have been in place for a very long time already and were backed up by the Ombudsman, the new law enabled enforcement via the courts and in effect removed "Utmost Good faith"

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Explanations of the new law

 

"If the insurer would have imposed different terms (other than relating to premium), it may choose to treat the contract as if those terms applied. If, for instance, it would have included a particular exclusion and the claim falls within that exclusion, the insurer will not be obliged to pay the claim. And where the insurer would have charged a higher premium, any claim under the policy can be reduced proportionately."

 

http://www.out-law.com/page-11391

 

"40. If, in the absence of a breach of the Duty, the insurer would have written the risk, but

on different terms, the contract will be treated as if it had been written on those

terms.

45 That does not include terms relating to the premium. Effectively, this means

that the courts will rewrite the contract – on the basis of what the underwriter would

have written if he/she had received a fair presentation of the risk. "

 

 

This link has a good explanation of the new law http://www.7kbw.co.uk/media/uploaded_files/Guide_to_the_Insurance_Act.pdf

 

For the record, these practices have been in place for a very long time already and were backed up by the Ombudsman, the new law enabled enforcement via the courts and in effect removed "Utmost Good faith"

 

When they write these new laws, they add to the complexity.

 

Another example

 

Policyholder takes out Contents Insurance for £30k believing it covered the value of their possessions. They suffer a burglary and a loss assessor calculates that the sum insured should have been £40k. At £40k the Insurers would have applied minimum security conditions and it is found that the policyholder would not have complied with these conditions, had they been applied at in inception.

 

How should Insurers deal with the situation ? What parts of the new law would apply ?


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When they write these new laws, they add to the complexity.

 

Another example

 

Policyholder takes out Contents Insurance for £30k believing it covered the value of their possessions. They suffer a burglary and a loss assessor calculates that the sum insured should have been £40k. At £40k the Insurers would have applied minimum security conditions and it is found that the policyholder would not have complied with these conditions, had they been applied at in inception.

 

How should Insurers deal with the situation ? What parts of the new law would apply ?

 

The law is much easier than you're making out, it basically just used the way the Ombudsman previously dealt with non disclosure and made it law enabling you to enforce via the court and they in effect removed Utmost good faith.

 

The law allows the Insurer to rewrite the insurance on the premium / terms they would have had they know the correct information, so if they would have applied a security warranty they can decline the claim.

 

Obviously this is assuming the theft was affected by the minimum security as per ICOBS eg if the theft was carried out by entering and exiting via a smashed window the minimum security warranty would probably not prevent the consumer claiming.

 

It's no different than how the Ombudsman would have handled the non disclosure prior to the law change, the FOS have used this system for 10 + years at the very least.

 

The normal rules for under insurance would apply

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The law is much easier than you're making out, it basically just used the way the Ombudsman previously dealt with non disclosure and made it law enabling you to enforce via the court and they in effect removed Utmost good faith.

 

The law allows the Insurer to rewrite the insurance on the premium / terms they would have had they know the correct information, so if they would have applied a security warranty they can decline the claim.

 

Obviously this is assuming the theft was affected by the minimum security as per ICOBS eg if the theft was carried out by entering and exiting via a smashed window the minimum security warranty would probably not prevent the consumer claiming.

 

It's no different than how the Ombudsman would have handled the non disclosure prior to the law change, the FOS have used this system for 10 + years at the very least.

 

The normal rules for under insurance would apply

 

You sort of make the case for me. The new law makes you question what you would normally have done anyway.

 

As you say, you compile evidence of the loss event, what was taken, how entry was made, what Contents the Policyholder had particularly valuables and come to a decision. Has the policyholder deliberately under valued their Contents, would the security terms have made any difference etc.

 

My experience of such claim events, is that Insurers would pay the claim based on £30k sum insured and apply under insurance. But as part of dealing with the claim, they would insist on the Policyholder increasing the sum insured and upgrading the security where needed.


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You sort of make the case for me. The new law makes you question what you would normally have done anyway.

 

As you say, you compile evidence of the loss event, what was taken, how entry was made, what Contents the Policyholder had particularly valuables and come to a decision. Has the policyholder deliberately under valued their Contents, would the security terms have made any difference etc.

 

My experience of such claim events, is that Insurers would pay the claim based on £30k sum insured and apply under insurance. But as part of dealing with the claim, they would insist on the Policyholder increasing the sum insured and upgrading the security where needed.

 

It's not rocket science, it's basically putting into law what has been best practice within the industry for donkeys years backed up by the Ombudsman

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It would be useful to know whether the Consumer Insurance Act has made any difference to the way Insurers deal with Policyholders and whether either the FOS or Courts have used this act to come to decisions.


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In my post about car mods, how would you deal with this.

 

The mods not disclosed increased market value by £1000. The additional premium would have been £100.

 

Would the Insurers pay the market value without including the mods.

 

Would they backdate the mods, pay the increased value, subject to the additional premium being paid.

 

Recent case: my friend had his car stolen and recovered a week later completely smashed, total loss.

Engineer inspected the car and pointed out sport suspensions, larger calipers and brakes, aftermarket alloy wheels despite a vw badge in the middle.

My friend never knew about these and

Didn't declare mods.

The insurance only paid for market value of the car, explaining that it's policyholders' responsibility to confirm accurate details.

My friend never challenged this decision because he didn't eve know about the mods and had not paid extra for them.

Maybe a one off or standard insurance practice?

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Recent case: my friend had his car stolen and recovered a week later completely smashed, total loss.

Engineer inspected the car and pointed out sport suspensions, larger calipers and brakes, aftermarket alloy wheels despite a vw badge in the middle.

My friend never knew about these and

Didn't declare mods.

The insurance only paid for market value of the car, explaining that it's policyholders' responsibility to confirm accurate details.

My friend never challenged this decision because he didn't eve know about the mods and had not paid extra for them.

Maybe a one off or standard insurance practice?

 

They obviously decided the mods did not affect whether the car was stolen and paid out for the market value of a standard car. So a sensible decision. The Insurers were obviously not prepared to pay anything for mods, neither the policyholder or they knew about. Not all mods increase value, after a period of time. It can make a car less attractive to some buyers.

 

If the claim had been an accident, where they smashed the car up, with no third party involved, the Insurers may not have been as understanding. They could have said the performance enhancements were not declared and therefore not considered by underwriters, refusing to pay the claim. There is then the argument, about whether the mods has anything to do with the accident.

 

A friend of mine smashed his car up and he had undeclared mods. He tried to take off the mods before the engineer visited, but the engineer spotted signs of previous mods. The Insurers initially refused the claim, but eventually paid out, as they could not prove the mods were on the car at the time of the accident.


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Recent case: my friend had his car stolen and recovered a week later completely smashed, total loss.

Engineer inspected the car and pointed out sport suspensions, larger calipers and brakes, aftermarket alloy wheels despite a vw badge in the middle.

My friend never knew about these and

Didn't declare mods.

The insurance only paid for market value of the car, explaining that it's policyholders' responsibility to confirm accurate details.

My friend never challenged this decision because he didn't eve know about the mods and had not paid extra for them.

Maybe a one off or standard insurance practice?

 

Have a read of case 90/4

 

http://www.financial-ombudsman.org.uk/publications/ombudsman-news/90/90-vehicle-related-complaints.htm

 

However it's worth bearing in mind that the Ombudsman generally works on the basis that modifications normally do not increase the value of a car and sometimes reduce them.

 

This link explains it.

 

http://www.financial-ombudsman.org.uk/publications/technical_notes/motor-valuation.html

 

Well worth having a good read of the link as it's invaluable if you ever have a vehicle written off

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They obviously decided the mods did not affect whether the car was stolen and paid out for the market value of a standard car. So a sensible decision. The Insurers were obviously not prepared to pay anything for mods, neither the policyholder or they knew about. Not all mods increase value, after a period of time. It can make a car less attractive to some buyers.

 

If the claim had been an accident, where they smashed the car up, with no third party involved, the Insurers may not have been as understanding. They could have said the performance enhancements were not declared and therefore not considered by underwriters, refusing to pay the claim. There is then the argument, about whether the mods has anything to do with the accident.

 

A friend of mine smashed his car up and he had undeclared mods. He tried to take off the mods before the engineer visited, but the engineer spotted signs of previous mods. The Insurers initially refused the claim, but eventually paid out, as they could not prove the mods were on the car at the time of the accident.

 

So Uncle, just to understand, in my friend case if he'd had an accident, how could they say that the performance was enhanced?

Alloy wheels, larger brakes and better suspensions don't make the car go any faster, in theory they make it safer.

Would they argue that because of the mods, the driver would have driven faster having confidence that the car was safer?

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Possibly. The car would behave differently to a standard car.

 

My friend had mucked around adding bits to change engine performance, but making changes to suspension, brakes etc, might be an indication that the car may have had its performance altered. With modern cars, you can change the tuning electronically to produce more performance. The various mods may create suspicion about other changes.


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