CONSUMER INSURANCE CONTRACTS ACT 2019
Tue Apr 28 2020
Brokers Ireland is making you aware of new legislation that was signed into law end of December last. It has not been implemented, which means at this time none of its provisions apply. Nevertheless, we understand that it is still on the Government agenda and we believe that it is only a matter of time before implementation date(s) will be set. The impact of the Act lands mostly on insurers, and their dealings with consumers, but this will affect brokers’ duties also. The following is a summary of the main aspects of the Act, along with the impact on brokers.
Meanwhile, Brokers Ireland is actively lobbying with Department officials to allow for extension of lead-in times, such as allowing insurers sufficient time to collate their new question-sets, which will also include changes having to be made to EDI quote engines. Appropriate lead-in times will also allow brokers to prepare and make the necessary procedural, operational and training changes.
Consumer Insurance Contracts Act 2019
The Consumer Insurance Contracts Act 2019 (“The Act”) was signed into law on 26 December 2019, and as stated above the provisions of the Act have yet to be implemented.
The Act will have significant impact on all those who distribute insurance products, including brokers doing both life and non-life business. The Act is intended to improve the position for consumers and to make it more difficult for insurers to decline claims, with new proportionate remedies for misrepresentation and for dealing with claims, the replacement of the concept of warranties and the altering of the concept of insurable interest. The new Act corrects what has long been considered an imbalance in the pre-contractual burden imposed on insurance consumers and shifts the burden to the underwriter to make sufficient and appropriate enquiries when considering whether and on what terms to write a risk.
The Act makes significant changes to the pre and post contract stages of the insurance transaction, as well as the claims process. It provides that in certain circumstances third parties will be able to claim under policies of insurance.
The Scope of the Consumer Insurance Contracts Act 2019
Unless otherwise provided, the Act when it comes into force shall apply to life insurance and non-life insurance contracts that are agreed, varied or renewed post commencement of the Act. No provisions of the Marine Insurance Act 1906 or the Life Insurance (Ireland) Act 1866 will apply to a contract of insurance to which this Act applies.
The Act applies to insurance contracts with consumers as defined in the Financial Services and Ombudsman Act 2017, which includes individuals, unincorporated and incorporated bodies with a turnover of less than €3 million (provided such businesses are not members of a group with combined turnover greater than €3 million).
Pre-Contractual Duty of Disclosure – Replacement of Utmost Good Faith
The long-standing principle of utmost good faith (uberrima fides) will no longer apply to consumer insurance contracts. Instead, consumers will have to take reasonable care in answering specific questions asked by insurers, with no obligation on the consumer to supply any other information. There will be a presumption that when answering the questions asked by an insurer, a consumer knows that the question is relevant to the risk, or the premium, or both. Ambiguity is to be resolved in favour of the consumer. It should be noted by brokers that when determining whether a consumer has complied with the duty to use reasonable care, one of the factors to which regard will be had will be whether they were represented by an agent (i.e. a broker).
Suspensive Conditions – Replacement of Warranties
The Act replaces the concept of insurance warranties. Any term in a contract of insurance that imposes a continuing restrictive condition on the consumer during the course of the contract will be treated as a “suspensive condition”. The effect of a suspensive condition will be that for the duration of a condition’s breach, the insurer’s liability will be suspended and if the breach is remedied at the time of the occurrence of a loss then the insurer will be liable to pay the claim.
New Proportionate Remedies for Misrepresentation
The Act introduces proportional remedies for misrepresentation and an insurer will not be permitted to avoid a contract because of an innocent misrepresentation. For fraudulent misrepresentation, an insurer may still avoid a contract. However, for a misrepresentation that is merely negligent, account is to be had of what the insurer would have done if aware of the full facts at the time the policy was taken out. This would allow, if after considering the new information, they would never have insured the risk, the insurer to avoid a contract and return premiums to the consumer, or provide a reduction of the amount to be paid on a claim.
14-day Cooling-off Period
The Act provides a new 14-day cooling-off period for some contracts of insurance, with the consumer being given a right to cancel with no cost other than the premiums applicable to that period. This does not affect the notice periods provided under the Distance Marketing Regulations (30 days/14 days in respect of life/general policies respectively).
The Act applies the EU (Unfair Terms in Consumer Contracts) Regulations 1995 to consumer insurance contracts. These Regulations provide that a contractual term shall be regarded as unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
The post-contractual duties of insurer and consumer listed in the Act replace the duty of utmost good faith. The consumer will be under an obligation to pay premiums within reasonable time, or in accordance with the contract. The Act will allow an insurer to include an “alteration of risk” clause in a contract, which may be grounds for declining a claim. However, it should be noted that such a clause will be void where the change merely modifies the risk, as opposed to altering the subject matter of the contract of insurance. A “material change” will be taken as being a change taking the risk outside what was in the reasonable contemplation of the contracting parties when the contract was entered into. Exclusions from coverage must be explicit and in writing before the contract commences.
For non-life renewals, an insurer must provide the consumer with a schedule outlining the premiums paid by the consumer to the insurer in the preceding five year period, as well as a list of claims paid out on foot of the contract by the insurer to the consumer during the preceding five year period (except for health insurance contracts). This section of the Act would seem to overlook the fact that most non-life contracts of insurance are renewable on an annual basis. However, the intent of the section would seem to be that if a consumer has remained with an insurer for a number years, then the insurer will have to provide information on premiums received and claims paid. The wording only refers to “the insurer”, meaning that there is apparently no broader obligation to seek information from other insurers with whom the consumer may have been insured during the five year period.
This hugely expands what is currently required to be provided under the Non-Life Insurance (Provision of Information) (Renewal of Policy of Insurance) (Amendment) Regulations 2018, and will have major implications on EDI quote systems. There will have to be an appropriate lead-in time allowed for this, perhaps, to be provided incrementally over the next few years, rather than all at once.
For life and non-life, on renewal of a contract of insurance, the consumer will once again be under a duty to respond honestly and with reasonable care to requests by the insurer, but under no obligation to volunteer information. If no new information is provided, the previous information shall be taken not to have altered. An insurer must notify the consumer of any alteration of the terms and conditions of the policy at least 20 working days before the renewal date.
As the Act modifies the concept of insurable interest, an otherwise valid claim cannot be rejected by the insurer only because the party claiming is deemed not to have an interest in the subject matter of the contract. The Act will require an interest where the contract of insurance is also a contract of indemnity, but this is not to extend beyond a factual expectation of the economic benefits or losses that would arise in the ordinary course of events. The Act puts an obligation on the consumer to cooperate with the insurer in the investigation of insured events, including responding to reasonable requests for information in an honest and reasonably careful manner and notifying the insurer of the occurrence of an insured event in reasonable time. However, unless non-notification within such reasonable time prejudices the insurer, it will not be a valid ground for the insurer to refuse liability. The insurer must inform the consumer where a claim is settled (or otherwise disposed of) and the amount of the settlement.
Following the making of a claim, where either party becomes aware of information that could support or prejudice the claim, this information must be disclosed. If a consumer knowingly or fraudulently provides false or misleading information, or consciously disregards whether information is false or misleading, then an insurer will still be entitled to decline to pay a claim and to terminate the contract. Where criminal or intentional acts or omissions are excluded from property damage cover, only the claim of the person whose act or omission caused the loss or damage will be affected. For a consumer whose claim is excluded as a result of their criminal or intentional act or omission, the Act obliges them to cooperate with the insurer in respect of investigation of loss (claimed by another party) by submitting a statutory declaration, or producing documentation as requested by the insurer. A court of competent jurisdiction can reduce the pay-out to the consumer where they are in breach of their duties under the Act, in proportion to the breach involved.
What Does This Act Mean for Brokers?
Significant changes will have to be made by insurers to policy terms and conditions, contract documentation and question sets. It is likely that question sets will become longer, as the onus will now be on insurers to ask all relevant questions and there will be no onus on the consumer to volunteer information that might be relevant. For personal lines products transacted via EDI, brokers should expect changes to be made to the question sets via Applied/Relay and Open GI.
The Act will also impact the broker/client relationship. Brokers should carefully explain to their clients the nature and effect of the obligations being placed on consumers as a result of the Act, in particular, the pre-contract duty of disclosure and that they are under a duty to take reasonable care in answering the questions asked by the Insurer. Brokers should ensure that their clients are aware that it is to be presumed that a consumer knows that if an insurer asks a specific question that this is material to the risk, or the calculation of premium, or both.
Brokers should revise their Terms of Business documents to ensure that the consumer’s obligations are included, given that the Act expressly states that whether the consumer has used a broker will be relevant to the question of whether the consumer has taken reasonable care.
Brokers Ireland are currently reviewing our templates pending the commencement date of the Act (which is not yet known) and are assessing the implications of the Act for our members with a view to providing advice. A Guidance document will be provided in due course.
Again, we would like to reiterate that no provision of the Act has been implemented as yet. As soon as we know more in this regard, we will advise.
If you have any queries or observations in respect of this subject, please advise us at firstname.lastname@example.org.