The Law Commission is currently undertaking a consultation in relation to the proposed Insurable Interest Bill. In March 2015, the Law Commission published an issues paper seeking views on proposed reforms to the law governing insurable interest. The current consultation exercise, which closed on Friday 20 May 2016, aims at seeking industry views on the proposed wording for the bill. According to the Law Commission website, the Commission expects to report on feedback from the consultation later this year.
In respect of life insurance, the bill introduces the concept of “life-related” insurance. The relevant provision in the bill sets out three broad categories of interest for these purposes:
- certain specific relationships: if the relationship exists, there is no need for the insured to demonstrate financial dependency or expectation of financial loss. These relationships are described as being those of “natural affection”, and have been extended, such that an insured can be said to have an insurable interest in the lives of cohabitants, as well as children and grandchildren.
- prospect of economic loss: a policyholder may insure the life of another person on the grounds that they would suffer a loss on the other person’s death (or the occurrence of another insured event such as injury or incapacity of the life insured).
- policies intended to cover multiple lives: the bill provides that trustees of pension and other group schemes have an insurable interest in the lives of the members of the scheme.
In respect of non-life insurance, the draft bill provides a non-exhaustive “definition” of insurable interest. It also provides that an insured has an insurable interest if it:
- has a right in the subject matter of the insurance;
- has a right arising out of a contract in respect of the subject matter;
- has possession or custody of the subject matter; or
- will suffer an economic loss if the insured event relating to the subject matter occurs.
The accompanying guidance to the draft bill notes that the first three limbs of the test are largely focussed on property insurance, and reflect the current state of the law. It goes on to note that the final limb is intended to be broad in nature, and covers the types of insurance which previous consultees had been keen to include, such as liability insurance, D&O and business interruption cover.