The Consumer Rights Act merges all existing UK consumer protection laws and regulations and contains some major changes to consumer law. The insurance industry gives a collective shrug and moves on – so what? Some of the changes in this Act may end up affecting the way insurance contracts are sold and the FCA has already mentioned the introduction of the Act in it’s 2015 Business Plan. It seems clear to me that the introduction of the Act will have some sort of impact on the insurance industry, whether that impact is direct or indirect remains to be seen.
The Act received Royal Assent on 26th March 2015, and most of the Act will come into force on 1st October 2015. Insurance contracts are not specifically excluded from the legislation in the same way that mortgages are. The Act will therefore apply to insurance contracts and also to the services of a financial intermediary. The FCA has already announced they will work on ‘smarter consumer communications’ and unfair contract terms during 2015. Both these areas of work could be heavily influenced by the requirements of the Consumer Rights Act.
The Act contains a specific provision stating that anything that is said to the customer during the course of the sales process will become a term of the contract if the consumer has relied upon it during their decision making. In most cases, an intermediary will be acting as an agent of the customer, rather than the insurer, but where acting as an agent of the insurer intermediaries will need to be factually accurate about the cover provided by an insurance policy as any inaccuracies that are given to the customer verbally could end up being part of the insurance contract.
Where the Consumer Rights Act most readily intersects with the FCA’s planned work this year is in the area of unfair contract terms. The FCA included unfair contract terms in it’s risk outlook for 2015, and the Consumer Rights Act contains specific provisions around such terms. In their recent consultation paper on GI Add-Ons, the FCA announced a forthcoming discussion paper on smarter consumer communications. One has to wonder how much notice the FCA will take of the Act when drafting this particular discussion paper.
I suspect there will be a push for insurers to simplify their policy wordings. There has been some progress on this over recent years, particularly since the introductions of mandatory regulation in 2005. Insurance policy wordings are still lengthy documents full of arcane language however, and it does seem about time that these are shortened and simplified so that consumers are fully aware of all of the terms that apply to their insurance, rather than finding out at the time of a claim.
The Act states “A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.” There is also a requirement further in the Act for all terms must be “transparent and prominent”. While these requirements are not exactly brand new, I wonder if we may see more challenges brought to the requirements of insurance contracts. The downside to that of course, is that any required ‘loosening’ of the terms of an insurance contract might ultimately lead to higher insurance premiums for all.
There is one interesting term in the Act that applies specifically to financial services such as insurance. The Act states “A term of a consumer contract must be regarded as unfair if it has the effect that the consumer bears the burden of proof with respect to compliance by a distance supplier or an intermediary with an obligation under any enactment or rule implementing the Distance Marketing Directive.” Given that price comparison websites (PCWs) generally operate in a way which means they are likely to fall under the requirements of the Distance Marketing Directive, it will be interesting to see if this term ultimately has any influence on the relationship between insurers and PCWs.
Phil Lewis is head of HR and compliance at Source Insurance