Insurance premiums to rise under new draft legislation

Insurance premiums could rise to pay for a change in the law that would see insurers pay out millions more to customers.An update in the law, which has not changed for more than 100 years, is being suggested by the Law Commission and its Scottish counterpart.
Under the draft legislation, claims would be less likely to be rejected because a customer had failed to tell an insurer about information that might subsequently be important.It could see insurers paying out £4.4 million more for life claims, and between £5 million and £20 million for other insurance policies.
The report said: “This may be seen as a cost to insurers and a benefit to those consumer policyholders who receive a full or partial payment of their claims.
“We anticipate, however, that the cost of additional claims would be passed on to consumers. This would add around 0.08 per cent to the cost of life and critical illness insurance and 0.025 per cent to 0.1 per cent to general insurance.”
It equates to an extra 2.5p to 10p for every £100 of premium currently paid for non-life policies.
However, if consumers had deliberately misled the insurer the company could completely refuse their claim.
If they had not taken enough care in making sure the information was correct, they could be asked to pay a higher premium for future cover or receive a lower part as part of a claim.
The legal bodies said that the current situation had led to “unacceptable confusion”.
Phil Jones, of consumer campaign group Which? said: “This law is out of date and can leave people without cover when they need it most.
“We don’t think insurers should be able to reject claims because customers haven’t disclosed information they were never asked for and is unrelated to their claim.”
The Association of British Insures said it does not oppose the proposals as they recognize industry best practice.
Nick Starling, the ABI’s director of general insurance and health, said: “We share the Law Commission’s desire that customers should be treated fairly. The insurance industry is committed to ensuring that customers understand their rights and obligations, and have their genuine claims paid quickly.”


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