Jul 1st 2015, 21:44

INFORMED CONSUMER CHOICE OF INSURANCE COVER: THE DUTIES OF INSURERS

An appreciation by Phillip Taylor MBE and Elizabeth Taylor of Richmond Green Chambers

Insurance: what would we do without it?

But on what basis do we choose the right level of cover at the right price? There’s so much choice out there, but how exactly does one choose? Yes, price comparison sites are ubiquitous, but as the author of this book, Leander Loacker, points out, mere price is only one criterion of choice and not necessarily the most important one. What the beleaguered consumer needs is adequate and proper information, hence the title of this new book from Edward Elgar: ‘Informed Insurance Choice?’ with a question mark.

The subtitle too, which is largely self-explanatory, refers to the duty by insurers to supply adequate pre-contractual information in general consumer insurance -- a duty that should ideally be supported by force of law, so that consumers ‘know what they owe’ before any contract is signed. This is the ideal of course, but many consumers are inclined to wonder if their insurance arrangements really meet their needs in return for the amount of money spent.

The author, Leander D. Loacker is from the University of Zurich and he says quite frankly that ‘obtaining cover can mean buying a pig in a poke,’ adding that in mass risk insurance especially, inexperienced customers enter into contracts about which they have ‘only the vaguest notion’.

The result is an inappropriate choice of cover and probably a lot of money wasted. The partial solution, as the author suggests is to give the customer all -- not some -- of the relevant information so that an informed choice can be made up front. Writing in the foreword, Malcolm A. Clarke of St. John’s College, Cambridge points out that the book ‘looks at the insurers’ duties as they stand, or should stand today.’

Loacker first examines the way in which ‘the information model’ is implemented under English contract law, compared with, for example, German law. Here, the subject is looked at from an economic perspective with reference to the ways in which economic considerations can and do underpin various legal interventions. Numerous policy recommendation are then suggested, together with specific proposals for improvement in current laws, accompanied by detailed discussion on the means by which such proposals might be realized.

The author’s suggestions for reform in these and related matters include, for example, implementing, or altering incentives to insurance companies to induce them to improve their consumer information model. Legislation to enforce cooling off periods and/or curtailing aggressive marketing tactics (to include telephone marketing, one hopes) is also discussed. There is even a suggestion to restrict consumer choice, which in free market economies is hardly likely to happen.

A more positive recommendation is that ‘legislators put themselves in the recipients’ position’, based in the sympathetic, yet hard-headed realization that some consumer groups are more vulnerable than others. Now there’s a thought -- and in the author’s opinion ‘it appears likely that within the EU we will be heading further towards a “know your customer” rule overall and specifically in the insurance sector.’

This book is actually a monograph and, judging by the bibliography of almost 30 pages, is the result of a mind-bendingly huge amount of research. As such, it makes an invaluable contribution to the literature on at least one (but not the only one) of the financial services industries which clearly need to put certain reforms in place.

The publication date is cited as at 2015.

'This book is the result of a mind-bendingly huge amount of research. As such, it makes an invaluable contribution to the literature on at least one of the financial services industries which clearly need to put certain reforms in place. Loacker has started a very substantial debate which will continue for some years.' -- Philip Taylor, MBE, Richmond Green Chambers 'This book is an important contribution to a question that has received little analysis hitherto, namely, what is and what are the effect(s) of the duties imposed on an insurer to provide information to prospective policyholders. As well as original analysis of English, German and prospective European law, and with insights from law and economics, it makes some key recommendations. It should be read by all academics, policymakers, professionals and regulators with an interest in insurance law.' -- John Birds, University of Manchester, UK 'The serious reader will find here a first class monograph, well-structured and scholarly, with a clear perspective on some important issues arising in the law of insurance contracts today.' -- From the foreword by Malcolm A. Clarke, St John's College, Cambridge, UK