Technological advancements have revolutionised the insurance industry over the years, paving the way for new ways of doing business but the law remains the same as it was hundred years ago. This has presented huge challenges for the judiciary in developing the principles of insurance law to adapt to changing economic conditions. Despite calls for statutory measures that would have the full force of the law, much of the insurance industry continues to favour self-regulation in the form of FSA rules which replaced Insurance Statements of Practice.
Insurance law developed in the 18th and 19th century and is largely codified in the Marine Insurance Act 1906. This ancient Act imposes heavy duties on those who apply for insurance of any type, to disclose any information that would “influence a prudent insurer”. Failure to disclose any information that may be deemed to be of importance to the insurer, can result in a policy of insurance being avoided. There is the argument by legal commentators such as R. Hasson who holds the position that this principle has been wrongly and broadly applied, contrary to what was intended when the principle was first formulated in the 18th century by Lord Mansfield in Carter V Boehm.
Most legal commentators maintain that the rules set out in the Act are inapproriate for a modern consumer market. The development of the financial Ombudsman Service as a substitute for law reform has not resolved the problems that consumers of insurance services face. Most people continue to be unaware of their duty of disclosure and are often surprised when their insurance claim is rejected for non-disclosure. The discretionary nature of the decisions of the Financial Ombudsman Service makes it difficult for insurers and consumers to understand what is required of them. The Financial Services Authority rules are inadequate and are primarily intended to regulate the market rather than grant private rights to individual insureds.
The current law is unclear, incoherent and in need of reform in order to meet the expectations of consumers. A new Insurance Act for the 21st century is desperately needed in order to address the present defects in the law and restore confidence in the insurance industry.