Claims and complaints set to rise under new law

Brokers could face a flood of complaints from insurers over an increased number of claims that are expected to be paid under new rules, a top insurance lawyer has warned.

CMS Cameron McKenna insurance sector group head Stephen Netherway said the Consumer Insurance (Disclosure and Representation) Act 2012 could increase the risk burden on brokers as well as damage relationships with insurers when it is implemented in March 2013.

The Act puts the burden on insurers to pay up claims if a consumer acts “honestly and reasonably”.

“If more claims are expected to be paid, this will make books of business appear less profitable, without commensurate premium uplifts,” Netherway said. “This raises the question as to whether brokers’ legal exposures will change. Certainly if more claims or proportionate parts of claims are paid, then the broker won’t have unhappy customers, but the reduction in that exposure could be offset by complaints directed at the broker by disgruntled insurers.

“This is a fundamental piece of legislation because it rips up 100 years of settled law on the duty of utmost good faith and specifically the duty of disclosure, for consumer business,” Netherway added.

RWA Compliance Services head of broker professional development Peter Staddon said the act reflected the industry’s good practice and sthe stance taken by the Financial Ombudsman Service.