ABI agrees that current law is outdated
Policyholders who suffer as a result of their insurer delaying or failing to pay a valid claim would be entitled to compensation under proposals put forward by the Law Commission.
In a consultation paper issued today, the Commission suggests that the insurer's primary obligation in law should be changed from a duty to prevent loss to a duty 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 – that is for proven and foreseeable losses" states the recommendation.
Currently in English law, an insurer is not liable for any loss caused by its delay or failure to pay a valid claim, except in the case of life insurance. However, the Financial Ombudsman Service (FOS) frequently compensates consumers for distress and inconvenience and the Association of British Insurers agrees that there is need for reform in this area.
The consultation is open until 20 March 2012.
The Law Commission and the Scottish Law Commission have been working on a joint review of insurance contract law since January 2006. Since then the Consumer Insurance (Disclosure and Representations) Bill has progressed through Parliament and is expected to become law in the first half of 2012. It shifts the emphasis away from a consumer's duty to disclose all necessary information, to a requirement for insurers to ask particular questions and obtain specific information about their customers, before they issue a policy. It also establishes a statutory code for determining whether an intermediary acts for a consumer or an insurer when arranging insurance, based on whether he or she is offering tied of whole of market advice.