Brokers fear falling foul of Consumer Insurance Act – survey

Brokers are worried they will be more exposed to liability claims for delivery of inaccurate risk data following the introduction of the Consumer Insurance (Disclosure and Representations) Act 2012, a survey says.

A client survey conducted by compliance consultancy UKGI found that 77% of respondents feared that the act would result in increased liability for brokers acting on behalf of either the client or the insurer if incorrect underwriting information was submitted, resulting in the repudiation of a claim.

UKGI managing director Jerry White said that the results showed that it was unclear what the act would mean for brokers’ businesses.

“These findings show that there is still a significant amount of uncertainty and even fear among the broking community around what this act will mean in practice,” he said.

“The fact that some insurers are being less than forthcoming in explaining exactly what information they need from brokers and how they want that information to be gathered and submitted creates more of a fog around the issue than is necessary,” he added.

The act, which came into force on 6 April, replaces the consumer’s duty to disclose material facts with a duty to “take reasonable care not to make a misrepresentation to the insurer”.

In response, brokers have to change the questions they ask their clients and the way in which those questions are asked. Many of the brokers surveyed were concerned that this would result in a lengthening of the sales process and an increase in the amount of work brokers have to do.

Seventy-three per cent of respondents felt that the changes to the way in which underwriting information will be gathered would lengthen the sales process, while 70% of respondents believe the act will result in more time spent producing paperwork.

Of those holding a delegated authority, more than half reported that they had received no guidance from their insurer as to how questions should be asked on their behalf.

The survey also found that insurers appear to be toughening their stance on claims. When asked if insurers were getting tougher and asking for more in-depth information, 58% of respondents agreed or strongly agreed with the statement.