Why should we care about the Consumer Rights Act?
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 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.
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”. Whilst these requirements are not exactly brand new, I wonder if we may see more challenges brought to the requirements of insurance contracts.
FCA boss gets the push
The controversial boss of the FCA, Martin Wheatley was sacked by the Treasury in July, citing a need for a change of leadership. Mr Wheatley oversaw the debacle that saw millions wiped off insurance company shares following an unauthorised briefing provided to a journalist about a potential new investigation into Zombie funds.
The FCA then provoked fury among insurers and investors because it waited for six hours after the stock market opened to make clear that the scope of the probe was much narrower than originally reported in the Daily Telegraph. The initial report sparked fears of a wide-ranging investigation into 30m policies and led to hundreds of millions of pounds being wiped off the sector’s market capitalisation. Coming on the back of Mr Wheatley’s stated intent of being a regulator that is not afraid to shoot first and ask questions later, alienating large swathes of the financial services sector the Treasury seems to have lost confidence.
The contrast between Mr Wheatley’s leadership style and the new temporary head Tracey McDermott is stark, Ms McDermott gave the markets some confidence this week by stating, in her inaugural speech that a , “good regulator should be like a good referee” – constantly on the pitch, keeping up with what is going on, respected, firm, consistent and fair and tough when required - but not interrupting the flow unnecessarily and being largely invisible to the spectators most of the time, if she delivers then I think we would all welcome that.
A loss of utmost good faith
In August the insurance act will be implemented giving firms a year before it becomes law in order to make the necessary changes to comply and you should be worried. There are a number of significant changes that have far reaching consequences and see the most radical change to insurance law for more than 100 years. Fundamentally, two aspects of the changes are particularly relevant to the intermediary. Firstly, at present the onus is on the policyholder to disclose any material fact that they know or ought to have known, however, the new act will simplify this to require the policyholder to be bound by a duty of fair presentation. In other words placing them under no obligation to disclose information either not asked for or that which the insurer ought to have known. Secondly, non-disclose is treated completely differently under the new act. At present an insurer can avoid a claim if the insured has failed to disclose any material fact, however, the new act places the emphasis firmly on the insurer to demonstrate that the non-disclose was deliberate of reckless. So quite what that means is open to interpretation but as intermediaries often complete and advise much of the required paperwork for their clients they could unwittingly put themselves in a potentially libellous position.
