Insurance prices could rise after 'collateral lies' ruling
Insurance prices could rise following a recent court ruling, experts have warned.
The Supreme Court – the highest court in the UK – ruled last week that insurers can’t reject claims purely because the claimant has told a lie that isn’t actually relevant to the case.
These so called ‘collateral lies’ are used by claimants to “embellish” their case, but whether true or false they are irrelevant to the claim itself.
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The Supreme Court case centres on a claim made against a damaged a ship. The claim stated that an alarm sounded on the ship, which indicated the ship had been damaged, but due to bad weather it couldn’t be investigated. This was a false statement made to strengthen the claim and to accelerate payment.
When the case initially went to court, the judge ruled that this lie made the claim fraudulent, meaning the insurer didn’t need to pay out. This decision was upheld by the Court of Appeal, but then overturned by the Supreme Court, which ruled that, as the lie was irrelevant to the claim, the insurer still had to pay.
However, insurance experts now warn that the decision could directly impact the price consumers pay.
James Dalton, director of general insurance policy at the Association of British Insurers (ABI), says: "This decision risks pushing up the cost of insurance and prolonging the pay-out process for the vast majority of people who are honest customers. As the dissenting judge, Lord Mance said, allowing lies will ‘distort the claims process by the time and cost involved in unveiling the fraud and attempting to ascertain its true implications’.”
He adds that the industry will now have to “study this judgment carefully”.
Kevin Pratt, consumer affairs expert at MoneySuperMarket, adds: “The one worry [as a result of this ruling] is that, if insurers are paying more claims as a result of this ruling, then they will increase premiums. That will make it more important than ever for people to shop around every time their car, home or travel policy comes up for renewal, to ensure they get the best price.”
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Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.