Law Commissions' Reforms: Insurable Interest

Weekly update 13/15 reported the issues paper published by the Law Commissions regarding their proposed reform of insurable interest. They have now reported that their proposals were well supported and a draft bill (linked to below) has been drafted to give effect to the proposals (and they hope that the bill will be able to follow the uncontroversial Law Commission bill route). A short consultation period on the bill will close on 20th May 2016. A paper on parametric insurance has also been produced, explaining how the insurable interest reforms will work with these products.

The main reforms introduced by the draft bill are as follows:

  1. Insurable interest is extended to include an interest in the lives of the insured's children and grandchildren and of a civil partner (where they are the subject of a life-related insurance policy). Group insurance policies are also covered. However, the Law Commissions stopped short of providing an automatic insurable interest in the lives of parents and grandparents.
  2. Insureds will meet the economic loss test if they have a reasonable prospect of suffering economic loss on the occurrence of the insured event.
  3. For non-life policies, it is confirmed that a policy will be void if the insured does not have an insurable interest at the time the policy is taken out, or a reasonable prospect of acquiring such an interest during the policy period. The insured must also have an insurable interest at the time of the insured event, in order for a claim to be payable (although the policy will not otherwise be void). It should be noted that, in any event, the indemnity principle requires an insured to suffer a loss in order to claim under a policy. An insurable interest includes where the insured would suffer an economic loss if the insured event occurs. The Law Commissions describe this provision as "very wide".
  4. The draft bill will, if enacted, repeal the Life Assurance Act 1774, the Marine Insurance (Gambling Policies) Act 1909 (which makes it a criminal offence to take out a marine insurance policy without an insurable interest) and the Marine Insurance Act 1788.