Insurance ambiguity brought by new Act

Insurers are being advised to make sure they are up to speed on the Consumer Insurance Act (CIA) which came into effect earlier this month.

The CIA is a big boost for consumers as they are no longer duty bound to disclose everything relevant about their application.  The onus will now be on insurers and brokers to ask the right questions, though claims will still be forfeit if it is found the claimant deliberately withheld information.

There have been a few voices raised in concern about the ambiguity the CIA has brought between insurers and brokers. Martin Oliver, chief executive of brokers A&A Group, says that insurers are not being clear with brokers as to what is expected of them. “I can only remember seeing one document on this issue from an insurer as to what they expect to see. The activity around this has been patchy but these changes are quite fundamental.”

There is a worry that if brokers should fail to ask the relevant questions then insurers may seek recompense from the same bodies. Steve Foulsham, Head of technical services at the British Insurance Brokers’ Association, warns: “Insurers may be looking to target brokers if there is any suggestion something has not been disclosed that the broker may have been aware of or should have been.”

One high profile case was that of Nic Hughes, who died of cancer last year. When he applied for insurance in 2009 he declared he suffered from ulcerative colitis but didn’t mention other symptoms such as pins and needles or that he had been advised to reduce his drinking.

His insurer, Friends Life, refused to pay out on his claim saying that if they had known about these conditions they would not have insured him.

Susannah Hancock, Mr. Hughes’ widow, took up her complaint with the financial ombudsman who has since ruled in her favour and Friends Life has agreed to pay £100,000 (the full claim amount) and interest.

The ombudsman said: “[Friends Life] accepts that any non-disclosure was not deliberate or relevant to the claim he later made – so the firm accepts it was not entitled to rely on that and it should have paid the critical illness claim when it was submitted.”