Insurance Contract Law: Insurable Interest

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

Improving an antiquated and restrictive insurance law. We are analysing responses to our consultation on the updated draft Bill and will produce a report with final recommendations in due course.

Download the accompanying notes to the draft Bill

Download the draft Bill

Download the response form

The problem

At its simplest, the requirement for insurable interest means that, for a contract of insurance to be valid, the person taking out the insurance must be affected by the subject matter of the insurance. They must stand to gain a benefit from its preservation, or to suffer a disadvantage should it be lost or damaged.

Stakeholders have told us that the current law, particularly for life and life-related insurances such as health and accident cover, is antiquated and overly restrictive.

It prevents, for example, socially useful insurances for children or cohabitants.

The project

Together with the Scottish Law Commission, we have been working on a joint review of insurance contract law since 2006.

To date, our work has led to the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015. The final area of review is the law concerning insurable interest.

We first consulted on policy proposals in an Issues Paper in 2008. Following stakeholder feedback, we updated our proposals in our 2011 Consultation Paper: Insurance Contract Law: Post Contract Duties and other Issues, and in a further issues paper in March 2015.

In April 2016, we conducted a short consultation exercise on a draft Bill designed to give effect to our proposals.

Although most consultees agreed with the overall direction of our proposals, concerns were expressed over some of the details, and in particular their interaction with current market practice. It was also clear from those responses that there was little demand for reform in the area of non-life insurance.

In June 2018 we published an updated draft Bill for further comment. That draft was confined to life and life‑related insurances. We are now analysing responses to our consultation on the updated draft Bill and will produce a report with final recommendations in due course.