Legal and compliance: what you need to know this quarter

Posted on: 01 April 2015

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The Insurance Act 2015 received Royal Assent on 12 February. The Act is the outcome of nine years of consultation by the Law Commission and Scottish Law Commission.

These latest measures, together with the consumer insurance reforms under “CIDRA” (Consumer Insurance Disclosure and Representations Act 2012), represent the largest overhaul to insurance contract law in over a century. The changes are intended to bring the market into the modern day by rebalancing rights and remedies when things go wrong. The reforms in the Insurance Act 2015 will come into force in August 2016.

Although the Act is seen as applying to non-consumer contracts of insurance (which it does for pre-contractual obligations of disclosure), the Act also affects consumer contracts in respect of post-contractual remedies. These are summarised below:

Remedies for breach of warranties

Instead of discharging liability, from August 2016 a breach of warranty will result in the insurance cover being suspended for the duration of the breach, and re-instated once the breach has been fixed.

Remedy for breach of terms designed to reduce particular types or risk

This relates to situations where an Insured breaches a term of an insurance policy (whether it’s a warranty, condition or similar) which is intended to reduce the risk of particular types of loss. Based on prior legislation, the Insurer would be within their right to refuse to pay a claim on the policy. The new reforms, however, will prevent this where the Insured can show that the non-compliance did not increase the risk of the loss in that circumstance.

Remedies for fraudulent claims

Where an Insured makes a fraudulent claim, the Insurer can refuse to pay the claim and recover any sums already paid in respect of the claim. The Insurer may, by notice, treat the policy as terminated with effect from the fraudulent act and retain all premiums paid (but previous valid claims will be unaffected). The same rights apply to fraudulent claims made by persons under a group policy, although only in respect of those who commit fraudulent acts – not those who are innocent members of the group policy.

Compliance

Guide to Data Protection

The Information Commissioners Office has updated its Guide to Data Protection. The Guide aims to provide a ‘one stop shop’ for practitioners and is now accessible from one place on the Information Commissioners Office website. It brings together their guidance on each principle and the codes of practice, as well as a new ‘Action we’ve taken’ section highlighting how they’ve helped organisations comply with the obligations. This includes all types of enforcement action, decision notices and reports from the Information Commissioners Office’s audit and advisory visits.

The FCA on Improving Complaints Handling

The FCA has published its proposals following their complaints thematic review in November last year. The key changes you need to be aware of are;

Extended time period for dealing with complaints less formally

Businesses now have three working days from receipt to deal with complaints, rather than the previous next working day rule. This means that firms won’t have to send a ‘final response’ letter to those complainants following receipt. The FCA believe this will benefit customers in a number of ways; mainly by allowing firms to handle complaints more quickly and efficiently than if those complaints entered the firms’ more formal complaints processes. Companies will have longer to deal with less serious complaints informally, without escalating them to a formal complaints process.

Requirement to send a written communication

A ‘summary resolution communication’ must be sent to all customers whose complaints are handled by the end of the three business-day period, explaining that they have the right to refer to the ombudsman service if they’re unsatisfied. This can be sent electronically or by letter. The FCA are amending their rules to allow customers to refer their complaint immediately after they receive a response, without having to wait for the current eight-week period to elapse. This will provide consumers with important clarity and awareness about their right to refer complaints to the ombudsman service.

Requirement to report and publish all complaints

Businesses must now report and publish all complaints to the FCA (not just complaints resolved after the close of the next business day, as at present). This will increase transparency around complaints handling and is important if a greater number of complaints are handled within the extended three business-day period.

Credit Broking and Fees

The FCA introduced new rules for credit broking and fees which took effect on 2 January. They were introduced without any prior consultation because the FCA had significant concerns about the practices of some credit brokers; particularly with the high-cost-short-term credit market where upfront fees are charged.

The new rules focus on:

Fee and payment details

Transparency

Right to cancel

The full credit broking and fees policy statement can be found on the FCA website. Alternatively, this one-minute summary will give you the key insight you need on the subject