Utmost Good Faith, The Marine Act 1906

Life Insurance (and indeed many other forms of consumer insurance) has long been covered by the principle of uberrimae fidei (utmost good faith)

In summary this required applicants, or as we call ourselves now, consumers, to disclose all necessary information relevant to the risk to be insured, even if the insurance company asked no specific question about it.

The original thinking was simple: only the insured knows all about the risk, so they should have a duty to disclose anything which would ‘influence a prudent insurer’. The underwriter could then make a reasonable judgement based on all the facts.

Once upon a gentlemanly time this sufficed, but in the modern age, with ever more litigation and loss of trust between insurer and insured this has become unworkable. It just isn't what consumers believe and expect to happen when taking out insurance. The general feeling is that the insurance company should ask the questions and we should do our best to answer truthfully. If they don't ask or we forget to mention something, we expect the insurance to be OK. You no doubt have your own view on how the application process should work.

Up until now, the most recent law governing this was in fact The Marine Insurance Act 1906. This has now been repealed. Despite its title, the Act governed every life policy and every other consumer insurance policy too (but not group insurance, fact fans). In its place, the Consumer Insurance (Disclosure and Representations) Act 2012 is now law and should come into effect next year (2013).

In future, if insurers want to know something they must ask. In return, consumers must still tell the truth, but a minor infringement will no longer invalidate the contract. The end result makes sense for all parties and should help engender greater trust in insurers.

ref: http://lawcommission.justice.gov.uk/areas/consumer-insurance.htm