EU Consumer Rights Directive: getting it right - European Union Committee Contents


Supplementary memorandum by the Association of British Insurers

INTRODUCTION

  1.  The Association of British Insurers (ABI) welcomes the opportunity provided by the Select Committee on the European Union of the House of Lords to provide a supplementary submission on the European Commission's proposal for a Directive on Consumer Rights following the recent oral evidence we provided to the Committee on 21 May 2009. Our supplementary submission discusses the potential effect of the provision on inertia selling on both auto-enrolment of pensions and tacit renewals of insurance policies.

ARTICLE 45—INERTIA SELLING

  2.  As indicated in our written and oral evidence, we have concerns about Article 45 of the Directive for reasons outlined below.

Auto-enrolment of pensions

  3.  From 1 January 2012, UK employers will be legally obliged to automatically enrol their employees into qualifying pension schemes pursuant to the provisions of the Pensions Act 2008. Qualifying schemes include group contract based pensions, administered by insurance companies. This is an important initiative, as it will act as a key driver to increase the rate of saving on the part of UK consumers. We understand that the UK government has received confirmation from the European Commission that prohibitions on inertia selling in other European Union Directives (including the Distance Marketing Directive and the Unfair Commercial Practices Directive) will not affect the ability of UK employers to auto-enrol their employees in contract-based pensions. We understand the Commission's view is that auto-enrolment does not constitute a commercial practice and, therefore, it falls outside the scope of the relevant Directives.

  4.  It is essential that Article 45 of the proposed Consumer Rights Directive be viewed in the same way, to ensure a consistent approach to the issue of automatic enrolment. We therefore seek explicit confirmation from the UK government that this is the case and that this is appropriately reflected in the Directive. Failure to provide this assurance will damage market confidence in contract based pensions at a time when many employers are already tightening pension provision, and could result in many savers missing out on the opportunity to save in high quality arrangements when automatic enrolment is introduced.

Tacit renewals of insurance policies

  5.  Many consumers purchase motor and travel insurance policies. Often they agree as part of the terms and conditions of the policy that the insurance company will write to the consumer towards the end of the contract term to advise them that, in the absence of action by the consumer, their policy will automatically be renewed. This communication from the insurance company acts as an important trigger for the consumer as they then have the opportunity to shop around for a policy that better meets their needs in terms of service or price. If the consumer wishes to utilise the service of another insurance provider they are free to do so. In the absence of any communication from the consumer, however, their policy will be automatically renewed in accordance with the terms of the original contract.

  6.  Automatic renewal of insurance policies provides important protection to consumers. For example, in motor insurance it means that the consumer does not unknowingly break the law by driving a motor vehicle without insurance. Or, in the context of travel insurance, it means that the consumer enjoys continuous protection for their overseas travel. Indeed, in 2006 the UK Information Commission considered the issues associated with tacit renewals and concluded that such provisions in insurance policies were legitimate provided that the policyholder is made aware that their policy will renew automatically, the dangers of a failure to renew are discussed, the customer is told that they will be sent a notice of the intention to renew automatically and has the opportunity to change their mind.[2]

  7.  Article 45 of the proposed Directive would prohibit insurers offering this valuable protection to consumers. In our submission, the approach adopted by the Financial Services Authority in their Insurance Conduct of Business Rules (ICOBS) should be adopted in the proposed Directive. ICOBS Rule 3.1.17 provides that (a) firms must not enforce, or seek to enforce, any obligations under a distance contract against a consumer, in the event of an unsolicited supply of services, the absence of reply not constituting consent; (b) this rule does not apply to tacit renewal of a distance contract.

2 June 2009




2   The Information Commissioner's Best Practice Note can be found at: http://www.ico.gov.uk/upload/documents/library/data_protection/detailed_specialist_guides/automatic_renewals_gpn.pdf Back


 
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