The introduction of the insurance contract bill will come as welcome relief and respite for Irish policyholders who in the past have seen their insurance contracts subjected to ever-increasing terms, conditions and warranties.
The new legislation follows recent comments by Financial Services Ombudsman Ger Deering, who accused the insurance industry of voiding policies in a way he said was “unreasonable and disproportionate”.
Currently, as it stands, insurance companies can rely solely on their own “in-house” insurance policy to dictate the terms and conditions that can be relied upon to determine policy cover and claims conditions.
At the present moment, even the slightest minor indiscretion, error, innocent misrepresentation or innocent omission, can allow insurers to void and throw out their policyholders claims.
The bill aims to counteract this, and the legislation specifies how insurers are to administer the insurance contract to be fairer, more practicable and specify how insurers should treat their customers. The bill also aims to prevent insurers from declining claims based on remote or unrelated warranties, conditions, innocent omissions, innocent misrepresentations and errors made by the lay Policyholder.
Under the bill, the onus will be on insurers to ask the relevant questions when a consumer is taking out a policy. This is the opposite of the current situation, where the Policyholder is expected to anticipate exactly what has to be disclosed.
The bill also stipulates that the interpretation of any ambiguous policy wordings in the insurance policy wordings must favour the Policyholder. One would assume that as the policy, which is a very complicated legal and technical document, is written by the more powerful party, therefore, the Policyholder should not be expected to have and hold the same knowledge as the more dominant party, the insurance company.
Minister with responsibility for insurance reform Michael D’Arcy, who is piloting the bill through the Oireachtas, said it was a radical piece of legislation that should have happened years ago.
“It shifts the power to individuals rather than strong corporate entities,” he said.
Mr D’Arcy said when the bill is passed, insurers will no longer be able to “rely on the small print to avoid paying a claim”.
He said contracts were unfair at the moment, forcing thousands to complain to the ombudsman.
The second main area of change relates to retentions and their application following the completion of a successful claim. Currently, insurers retain a portion of the payment, typically between 25-60% until the works are completed, or have reached a particular milestone, a practice which is known as “retention”. In the last number of years, insurance companies have progressively increased the percentage that is retained following a loss.
With ever-increasing policy excesses, policyholders are very often in a much worse position than they were before the loss.
Under the new bill insurance companies will be limited to holding a maximum % based on the size of the claim, in 2 bands. The bill stipulates that the maximum retention that insurers can retain is capped at 5% on settlements less than €40000, and 10% on settlements over €40000
In practice as an experienced property claims expert, I don’t see too many changes. I already find that most of the leading Insurance companies are fair, reasonable and already take account of their Policyholder’s interests.
I do, however, welcome the reduction of the percentage of retained monies. It is generally accepted within the industry that retaining funds, while expecting a policyholder and or their builder to fund a construction project, following a loss isn’t fair and reasonable. Given that the insurance policy is to put the Policyholder into the same position they enjoyed immediately before the loss, the application of retention is in direct contradiction to this premise.
I am aware of several large projects that have never been finished to a pre-loss condition because the Policyholder was unable to fund the balance that was retained by an insurance company. If the Policyholder does not have access to credit to fund the balance of the project retained, they will not get the project completed and will have to live with a property that’s inferior to the pre-loss condition.
In summary, as a policyholder advocate and property claims expert, I welcome the proposed changes. In particular, I look forward to the introduction of further legislation protecting policyholders interest. The cap on retentions will make for a fairer and more equitable claim settlement process while eliminating the financial burden on policyholders following a loss.