Wendy Chowne: Account switching - could it work for more sectors?

24 June, 2016

Matters new and long-standing have arisen over the past month, with the Government introducing legislation to make the UK a world leader in digital provision, and the Law Commission introducing legislation to revise a long-held legal interpretation to ensure that crime really doesn’t pay!

As part of the Digital Economy Bill agenda, the government has pledged to extend the principle of 7-day switching from bank accounts to other products. It is seeking evidence from industry bodies, providers and consumers as to how a 7-day switching service could be implemented for a variety of sectors such as energy, broadband, mobile phones and mortgages, and asks what more could and should be done to speed the process up. Business Secretary Sajid Javid said [PDF]: 'I want to give consumers more power over switching providers for the services they rely on to make sure they are getting the best deals. The government is committed to creating a system that works for consumers and makes markets more competitive.'

Concerns have been raised by SPF Private Clients’ Chief Executive Mark Harris who recognises that, whilst the principle of switching mortgages within 7 days rather than the current norm of 2 to 3 months is attractive, there could be unintended consequences. Regular switching could adversely affect someone's credit rating due to numerous credit checks and thereby increase the price of future borrowing. He also recognises that regular switching might require firms to recoup the costs of recalculations which will need to be in line with new affordability rules and property revaluations, through the simple mechanism of raising prices. The clear fear is that the initial aim to give consumers more power and choice may backfire. 

The interpretation of Insurable Interest has differed between Scotland and England for generations. At the end of April the Law Commission drafted a new Insurable Interest Bill, with the intention of reconciling the interpretations. So, what is ‘Insurable interest’?  The doctrine is fundamental to establishing the validity of an insurance policy and without it the contract is void. It counters the risk of moral hazard and gambling when policyholders seek to take out insurance, requiring the policyholder to have a benefit in preserving the subject matter of the insurance, or to  suffer some disadvantage if the subject matter is lost or damaged. For indemnity insurance policies, such as household contents insurance, the doctrine is assumed as the policyholders can be compensated only for the proven loss. So, if your computer is stolen you know that you can claim recompense for the stolen computer but not for any other item covered by the policy. The doctrine has more relevance for life insurance which is usually a non-indemnity insurance, ie it pays out a fixed sum upon the occurrence of a specified event, usually that of death.      

Unlike Scottish law, English law has to date specified that a parent has no insurable interest in the life of a child, nor the reverse unless a specific obligation such as a maintenance order were in place. One section of the new bill seeks to broaden the existing categories of interest to include, among others: of children by parents, of grandchildren by grandparents and cohabitants under a 'specific relationship' categorisation. This will mean that the policyholder will not need to show financial dependency or financial loss. Controversially the proposed category does not include the insuring of a parent by a child. This situation is however covered by a second proposed category whereby policyholders can insure, but only on the basis that they would suffer a financial loss on the death or incapacity of the other. The reasoning behind this is moral hazard, which suggests that there is a legal concern that children or grandchildren might be more likely to ‘encourage the death’ of a parent or grandparent with an insurance policy in place than not.  And the fact that the reverse is not held to be a risk is rather belied by the cases of the ‘Black Widows of Liverpool’ and  of Janie Lou Gibbs of Georgia, USA, who was convicted of the murders of her husband, three sons and one grandchild, and who was happily collecting insurance payouts en route!

Wendy Chowne is a lecturer and examiner for ifsFind out more about our undergraduate programs here.