Insurers must tell policyholders at proposal or renewal that information on their claim might be requested from the police.
Insurers must do this to take advantage of the ABI's data-sharing deal with police.
The deal, which comes into force on 1 October, will allow insurers to request information from police if they suspect a claim is fraudulent.
But if the insurer does not have firm evidence of fraud, though insists on validating the claim with police before settlement, it must inform policyholders at the outset.
An ABI document sent to insurers warns: "Insurers must satisfy themselves whether or not current fair obtaining notices satisfy this requirement.
"If they do not, then the claimant's refusal to give consent to approach the police for information to validate a specific claim cannot by itself be used as grounds not to settle that claim."
The ABI has given an indemnity to police that the ABI could be sued if an insurer uses information disclosed by police improperly.
The offending insurer would be forced to cover the cost of any legal proceedings.
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