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Insurers move to vet policy wording as FSA steps up 'Treating Customers Fairly' agenda
The insurance world is moving swiftly to review and tighten up insurance policy wording as the FSA turns the spotlight on the fairness of terms and conditions in consumer policies as part of its Treating Customers Fairly agenda.
Specialist insurance law firm O’Connors LLP is handling an increasing volume of work from UK and relevant offshore insurers anxious to avoid being penalised by regulators.
Insurance policies and their terms have fared better than other consumer contracts following the introduction of new regulations a decade ago. However, the Financial Services Authority (FSA) has outlined its intention to put more pressure on insurers to comply with the law in this area in the interests of consumer protection. It has warned firms that don’t make sure policies are clear and jargon free that they could face commercial as well as regulatory consequences.
Nigel Wallis, a partner of O’Connors LLP, said his firm was dealing with a growing number of respected insurers keen to double-check that their policies terms are compliant.
“Since the turn of the year in particular, we have seen a significant increase in the number of insurers asking us to vet the wording of their policies to make sure they meet the standards required.”
In January, Katherine Webster, who is in charge of the FSA’s unfair contract terms team, set out her belief that policies should be free of what she described as ‘legal jargon’, including phrases such as ‘consequential loss’ and ‘indemnify’ which were commonly used in the insurance industry. She added that policies should instead be expressed in ‘plain, intelligible language’. Those that had even the potential for unfairness might prompt the FSA to take punitive action.
Wallis said a large number of insurers had already taken on board FSA suggestions that they should be pro-active about reviewing and rewording contracts. He added that the FSA’s emphasis on ensuring insurers had a sufficient volume of individuals with the expertise capable of doing the work appears to have led to greater outsourcing of elements of the work to specialist firms such as O’Connors.
“There is clearly a window of opportunity for lawyers like us who understand the subtleties of insurance regulation and insurance contract law and have the drafting skills to apply it in a practical way to assist the industry. Perhaps even more than the risks of unenforceability and compensation, insurers recognise the potential damage to their reputations if they are found not to have treated their customers fairly.”
For advice on policy wording please contact Nigel Wallis or Paul O'Connor at O'Connors LLP on 0151 906 1000.
