EC directive could prompt insurance policy review

Lawrence Graham warns that the EC Directive on unfair terms in consumer contracts will lead to a wholesale review of standard private individuals' insurance policies.

The directive, which came into force on 31 December, applies to all contracts concluded between insurers and their clients. It will hit insurers hard, since other industry is already subject to similar rules under the 1977 Unfair Contract Terms Act from which they are exempted.

Bruce Manford, commercial insurance partner, warns: “Without review, the contracts may be unenforceable by the insurance company.”

He says that the new regulations are particularly burdensome as the fairness of a term in a policy must be established by reference to the time at which a contract is entered into, but the directive does not define the concept of fairness precisely.

But there is a positive side. Manford says insurers and brokers can seize the chance to revise policy wordings so as to comply with the new rules, revised Lautro requirements and the introduction of insurance premium tax.

“Plainer English wordings are likely to find favour with consumers, who will find them easier to understand and relate to their particular needs” he says.