The Consumer Insurance Contracts Bill, which became the Consumer Insurance Contracts Act 2019, came as welcome relief and respite for Irish policyholders who in the past had seen their insurance contracts subjected to ever-increasing terms, conditions and warranties.
The legislation followed comments by the then Financial Services Ombudsman Ger Deering, who accused the insurance industry of voiding policies in a way he said was “unreasonable and disproportionate”.
Before the Act, insurance companies could rely solely on their own “in-house” insurance policy to dictate the terms and conditions that could be relied upon to determine policy cover and claims conditions.
Before the Act, even the slightest minor indiscretion, error, innocent misrepresentation or innocent omission could allow insurers to void and throw out their policyholders’ claims.
The Act 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 Act 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 Act, the onus is on insurers to ask the relevant questions when a consumer is taking out a policy. This is the opposite of the previous situation, where the Policyholder was expected to anticipate exactly what had to be disclosed.
The Act also provides 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.
The bill began as a Private Member’s Bill sponsored by Pearse Doherty TD. Michael D’Arcy, then Minister of State with responsibility for insurance reform, 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 that once the bill was passed, insurers would 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. Before the Act, insurers often retained a portion of the payment, typically between 25-60% until the works were completed, or had reached a particular milestone, a practice which is known as “retention”. In the years before the Act, insurance companies progressively increased the percentage that was 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 Act, where an insurer holds back part of a claim payment until repair, replacement or reinstatement work is completed, the amount held back cannot be more than 5% of the claim settlement where the settlement is less than €40,000, or 10% where it is more than €40,000.
In practice, as a property claims expert, I did not expect 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 did, 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 welcomed these changes, and I look forward to further legislation protecting policyholders’ interests. The cap on retentions makes for a fairer claim settlement process and reduces the financial burden on policyholders following a loss.
Read the Bill on the Oireachtas website.