New Consumer Insurance Act receives Royal Assent

 The Consumer Insurance (Disclosure and Representations) Act2012 has received Royal Assent and is expected to come into force in a year’stime.

The Act has received the backing of consumer groups,regulators and the insurance industry in general. It provides a long overdueupdate of consumer insurance law, shifting the balance of the law in favour ofthe consumer. It results from the Law Commissions’ 2009 Report on ConsumerInsurance Law, which set out to ensure that consumer insurance law be clear,straightforward and fair.

Main legal changes to consumer insurance

•The Act abolishes a consumer insured’s duty to volunteerinformation to the insurer. A consumer’s duty will be limited to making sure itanswers questions raised by insurers honestly and reasonably.

•Insurers will have to ensure they ask for any informationthey need to assess the risk being insured.

•If a consumer acts honestly and reasonably the insurer willhave to pay the claim.

•Where a consumer acts carelessly a proportionate remedywill be applied; the test will be what the insurer would have done had it knownthe full facts.

•An insurer will only be able to refuse to pay a claim if aconsumer acts deliberately or recklessly in making misrepresentations.

•An insurer will need to prove on the balance ofprobabilities that a consumer knew: a) that a deliberate or recklessmisrepresentation was untrue or misleading, or did not care whether it was ornot; and b) that the matter was relevant to the insurer, or did not carewhether it was or not. If a misrepresentation does not pass this test then itwill be a careless representation and must be treated accordingly.

•If the intermediary is an appointed representative of theinsurer, or is acting as the insurer’s agent, they will be considered as actingfor the insurer. In all other cases the intermediary will be presumed to beacting for the consumer.

Other provisions

•Insurers will be prohibited from contracting out of theeffect of the Act.

•The Act abolishes basis of contract clauses. Thereforestatements made by the consumer will not automatically be transformed intowarranties.

•For group schemes, if a group member makes amisrepresentation, this will only have consequences for the particularindividual concerned.

•If a consumer takes out life insurance on the life ofanother and the insured makes a careless or deliberate misrepresentation, theinsurer will have the normal remedies.

•The application of the Act is limited to individuals takinginsurance wholly or mainly for purposes unrelated to their trade or business.


The Act finally brings the law into step with current marketpractice already adopted by the Financial Ombudsman Service and FinancialServices Authority rules, providing clarity and consistency between regulatorsand the courts.

Insurers will now have one year to implement the necessarychanges before the Act comes into force in 2013.

This article first appeared in Law-Now, CMS CameronMcKenna's free online information service, and has been reproduced with theirpermission. For more information about Law-Now, click here.