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 45INERTIA
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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