FSA statement: consumer insurance

United Kingdom

The FSA has published a statement regarding use of the phrase “consequential loss” in general insurance contracts sold to consumers.

Concern for consumers

The Unfair Terms in Consumer Contracts Regulations 1999 is a piece of consumer protection legislation designed to ensure that terms in standard-form consumer contracts are fair and not “significantly imbalanced” in favour of the firm, to the detriment of the consumer. Under the Regulations, the FSA can challenge regulated firms that use unfair terms and/or terms that are not drafted in plain and intelligible language in standard-form consumer contracts.

The FSA is of the view that a term in a general insurance contract which excludes consequential loss is not written in plain, intelligible language, as it refers to an expression that has a legal meaning. The FSA does not believe that the average consumer would understand the terminology, and therefore what the consumer is not covered for under the policy, leading to a “significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”.

Consequences for insurers

If (normally after consultation with the insurer) the FSA believes that under the Regulations a term is unfair, the FSA has the power to ask the insurer to stop including such terms in new contracts and to stop relying on them in concluded contracts. If an insurer declines to do so the FSA will consider applying to the courts for an injunction to prevent continued use of the unfair term.

Insurers should also be aware that, in any event, if a court were to deem that a consequential loss exclusion was not written in plain and intelligible language and was therefore unfair, it would be construed in favour of the consumer. An insurer may then have to make payments in respect of the loss it had sought to exclude.

The FSA has published a number of “best practice” examples of terms which appear to exclude what is understood to be consequential loss in plain language without using the expression “consequential loss”; for example: “You are not covered for any other costs that are indirectly caused by the event which led to your claim, unless specifically stated in the Policy”. These examples should however be considered in the context of the wording of the insurer’s own policies.


The FSA expects insurers to comply with the Regulations in relation to consumer contracts. Insurers should ensure that their terms are plain and intelligible so that consumers understand what they are and are not covered for under the policy. Wordings should be regularly assessed in light of findings by the FSA and court decisions.

Further reading

Please click here for the FSA statement on using the words “consequential loss” in general insurance contracts.

Please click here for the Unfair Terms in Consumer Contracts Regulations 1999.