Advisers have not realised the impact the incoming Consumer Insurance Act will have when inputting medical information, a medical information provider has warned.
According to the provider MorganAsh, the law coming in on 8 March next year will tighten the rules over when an adviser is representing the client or the insurer when collecting medical information.
Andrew Gething, managing director of MorganAsh, said: "What this changes is that whereas before consumers were required to disclose all information, now they are only required to be honest.
"Advisers have not realised that it means they could be responsible for any claims disputes when collecting medical information on behalf of the insurer."
He said advisers had three choices; give the medical form to the consumer to fill out; outsource to other professionals; or train advisers in the firm to get the medical knowledge necessary to fill the forms out thoroughly.
Gething added: "All the insurer systems too have been built to be low cost to advisers so they can input this information easily. There is now a mismatch. The systems do not match the way this new law works and what advisers need to consider."
The incoming Consumer Insurance (Disclosure and Representation) Act 2012 will permit ‘honest misrepresentations' to be made, whereas previously the consumer was required to disclose all information.
The act wording states: "It is the duty of the consumer to take reasonable care not to make a misrepresentation to the insurer."
And later expands: "A misrepresentation made dishonestly is always to be taken as showing lack of reasonable care."
Peter Chadborn, co-founder of Colchester-based Plan Money, decided some time ago not to take on the "unnecessary" risk and sends the forms away with the client.
He said: "We are supposed to be the financial experts not the medical experts.
"And from a principal's point of view I do not want there to be any incorrect incentive for an adviser to be immorally streamlining the process given there is a vested interest in it being a clean case."
Chadborn said he accepted the risk of clients taking the forms away and not filling them in because in that scenario the advice process would not be up to scratch.
"A lot of it is about how you approach it. For example, you can explain to the client that it is in their interests to go away and fill it out in their own time and make sure it is right," he said.
"We saw no down turn in cases being sent back. But advisers are traditionally very reluctant to let go and in part it is because they do not trust the life offices."
The Association of British Insurers (ABI) said the incoming law just confirmed how insurers already operated.
It said: "The onus is on the insurer and the adviser to make sure the questions they are asking are the right ones."
The new act has reformed what was previously the Marine Insurance Act 1906. The ABI is "very supportive" because it had long since been out of date.
The Financial Ombudsman Service (FOS) said it did not comment on pending legislation.
It said: "Our role is not to comment on existing or new legislation, rather, we will give our perspective on the cases we have seen where the law may have had some bearing on our decision."
The ABI said: "This Act largely reflects existing industry best practise as recognised by the FOS. The primary objective of the Bill is to give clarity to insurers and insureds about their respective rights and obligations.
"If the Bill is to achieve this aim, it is important that all parties follow the law as closely as possible. As such, the ABI should like the FOS to provide reassurances that it will use the new law as the basis for all decisions that it makes on consumer insurance non-disclosure or misrepresentation cases."
