DID YOU KNOW -

When in Insurance is a consumer a Consumer?

This sounds obvious, but it may not be. Small business insurers and brokers, take note!

It’s well known the UK Insurance Act 2015 (“IA 2015”) deals with the Insured’s disclosure requirements on inception and when amending insurance contracts, referred to as the “duty of fair presentation”, and the remedies that follow for a breach. It is well known for dealing with the legal status and effect of warranties (if any), and what happens in the event of fraudulent claims. IA 2015 also deals with contracting out and in this respect distinguishes between consumer and non-consumer contracts.

IA 2015 does NOT cover the Insured’s disclosure requirements on inception and when amending consumer insurance contracts. This is dealt with by another (perhaps less well-known) statute: the UK Consumer Insurance (Disclosure and Representations) Act 2012 (“CIA 2012”). The disclosure duties here are not exactly the same as under the IA 2015 with the CIA 2012 not talking about fair presentation at all and instead referring to the Insured taking “reasonable care not to make a misrepresentation” to the insurer. The remedies for breach are however similar to those under the IA 2015.

Who or what is a consumer here? Essentially it is a natural person buying the policy solely or mainly for their personal benefit and not their business or trade. So “consumer” will not usually embrace any entity, business enterprise or sole trader. It’s people, you and me. Products being sold to both consumers and small businesses therefore need to cater for the application of the two statutes in relation to the disclosure obligations in these two categories.

Much has been written lately about the Financial Conduct Authority’s “Consumer Duty” which went live on 31st July 2023. This is a new wide-ranging duty in financial services requiring regulated firms to deliver a higher standard of consumer protection including good outcomes for their clients. I am not going to say more about it than that, as it is a specialist area where expert advice is needed.

More generally in relation to its insurance regulation, the FCA has defined a consumer as “a natural person acting outside any trade or profession” – pretty similar to the categorisation in the IA 2015 and CIA 2012. However, the Consumer Duty, despite its name, is owed to a much wider range of customers: namely “retail customers”.

I’m no regulatory expert but subject to some specific rules this appears to be everyone other than those buying:

reinsurance;
contracts of large risk; or
group insurance policies.

What is a large risk? It’s a business that meets two of the following three criteria:

Balance sheet total: EUR6.2m
Net turnover: EUR12.8m
Average annual employees: 250

So small businesses, eg CML for instance, will definitely be consumers for the purposes of the Consumer Duty, but they are NOT consumers in respect of their disclosure obligations for insurance contracts – which will be governed by the IA 2015 and not the CIA 2012.

Insights