The Law Commission has proposed a radical change in the contractual relationship between insurers and brokers.

In its third issues paper, part of a wider review of insurance contract law, the commission has proposed a rewrite of agency law.

As a result, where a broker acts negligently in obtaining pre-contract information, it is the insurer that will have to bring an action against the broker, rather than the insurer simply avoiding the claim.

Lawyers said the proposal would mean brokers would have to dramatically change the way they do business with insurers.

Stephen Netherway, insurance and reinsurance partner, at law firm CMS Cameron McKenna, said: "The relationship, which brokers currently have with an insurer, is not necessarily backed by a legal duty, but that won't be the case [under proposals by the Law Commission].

"As a result there will be a seismic shift in the position of the broker. Each broker will have to re-look at its position and how it does business with the insurer and the insured."

Meanwhile, the commission also proposed to water down the importance of the signature in deciding whether a policyholder has acted fraudulently in relation to a misrepresentation on pre-contract documentation.

Some fear this may lead to an increased number of disputes in the settlement of claims.

But Netherway dismissed concerns by insisting that brokers were now changing the way they did business to remove any legal risk.

A consultation paper on the three issues papers is due to be published by the commission at the end of June.