The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 came into force on 13th June 2014 and have limited application to the insurance industry. However, the Regulations will apply to the provision of insurance if the following occur: The service provided is received by an individual, being the consumer and the “financial service” is provided by way of an ancillary contract.
What is a “financial service”?
Generally, a financial service in the context of the insurance industry will be an insurance contract which is available with the purchase of a product, e.g. insurance that is purchased when entering into a contract with a mobile phone provider, or extended warranty insurance.
How will the Regulations apply to the financial services?
If the consumer terminates the main contract, any ancillary add-on insurance contract will terminate too.
Contracts which are terminated are generally at no cost to the consumer, unless the consumer expressly consented to such costs.
What should insurers do next?
Firstly, the insurer needs to identify how this applies to their supply chain. They may not supply these contracts directly, but do their coverholders or appointed representatives do so? Those insurers who also provide appointed representative status to affinity scheme providers should also check provisions of their relevant agreements. The insurer should also make sure that no additional payment is charged for automatically cancelling add-on insurance, unless the consumer expressly agreed the additional payment before the contract became binding. It thus needs to be agreed with those affinity providers what they intend to do if a cancellation occurs.
Secondly, if they do supply directly or indirectly, what needs to be said at the point of sale regarding the insurance, its potential for cancellation and the collection of premiums (and potential for repayment if cancellation occurs).
Thirdly, the Regulations are likely to place a new layer of reporting under coverholder or appointed representative arrangements, and all in the supply chain should be clear what needs to be reported and when. For example, if the consumer bought a car from Chrysler, and an insurance product was sold alongside, then the relevant agreement should make sure that Chrysler has to inform the insurer if the car is returned.
As a result of the Regulations, the insurer should make sure that it can be easily informed of when the main contract is cancelled, and if an additional payment is to be charged for cancellation, expressed consent is received before the signing of the contract.
Insurers should read Regulations 38 and 40 to ensure that their responsibilities under the Regulations are understood fully. Terms of business should make sure that the onus is on the “trader” (as defined in the Regulations) to inform the insurer of when any main contract is terminated.