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ICOB 6.4 Effects of cancellation

ICOB 6.4.1R

By exercising his right to cancel under ICOB 6.2.1 R, a retail customer withdraws from the contract.

Automatic cancellation of an attached distance contract

ICOB 6.4.2G
  1. (1)

    Regulation 12 (Automatic cancellation of an attached distance contract) of the Distance Marketing Regulations has the effect that, when notice of cancellation is given in relation to a contract, that notice also operates to cancel any attached contract which is also a distance financial services contract which does not fall within one of the exceptions to the right to cancel in Regulation 11 (Exceptions to the right to cancel) of the Distance Marketing Regulations, unless the retail customer gives notice that cancellation of the main contract is not to operate to cancel the attached contract. So the attached contract will not be cancelled if the price of the service depends on fluctuations in the financial market outside the firm's control or if performance of the contract has been fully completed by both parties at the retail customer's express request. Whether a contract will be 'attached' to the main contract will depend on the circumstances in each case. Regulation 12(1) provides that the contract will be attached if any of the following conditions are satisfied:1

    1. (a)

      it has been entered into in compliance with a term of the main contract;1

    2. (b)

      the main contract is financed or is to be financed by the contract;

    3. (c)

      the main contract is a debtor-creditor-supplier agreement within the meaning of the Consumer Credit Act 1974 and the contract is to be financed by the main contract;1

    4. (d)

      the retail customer has entered into the contract to induce the supplier to enter into the main contract; or1

    5. (e)

      performance of the contract requires performance of the main contract.1

  2. (2)

    A retail customer will also have an independent right to cancel an attached distance contract and may do so without cancelling the main contract.


ICOB 6.4.3R

Where a retail customer exercises a right to cancel under ICOB 6.2.1 R:

  1. (1)

    the insurer must pay to the retail customer without delay, and no later than 30 days after the date on which the insurer received notice of cancellation from the retail customer, any sums which the retail customer has paid to, or for, the benefit of the insurer in connection with the contract (including sums paid by the retail customer to agents of the insurer) except for the amount referred to in (2);

  2. (2)

    where the contract is a general insurance contract, subject to (3), the insurer is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract. The amount payable, however, must not:

    1. (a)

      exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the insurer in comparison with the full coverage of the contract; and

    2. (b)

      be such that it could be construed as a penalty;

  3. (3)

    sub-paragraph (2) applies only:

    1. (a)

      where performance of the contract has commenced before expiry of the cancellation period and this was requested by the retail customer; and

    2. (b)

      where the insurer can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with ICOB 6.2.1 R;

  4. (4)

    the insurer is entitled to receive without delay, and no later than 30 days after the date on which the retail customerposted or otherwise sent notice of cancellation to the insurer any sums and property that became the retail customer's under the contract.

ICOB 6.4.4G
  1. (1)

    The amount referred to in ICOB 6.4.3 R(2) may include any sums that the insurer has reasonably incurred in concluding the general insurance contract but should not include any element of profit.

  2. (2)

    An insurer and insurance intermediary should take reasonable steps to ensure that double recovery of selling costs is avoided, particularly where:

    1. (a)

      there is also a distance non-investment mediation contract (see ICOB 8); or

    2. (b)

      both commission and fees are recouped by an insurer and an insurance intermediary respectively.

ICOB 6.4.5G

The amount referred to in ICOB 6.4.3 R(2) may include:

  1. (1)

    an amount for the cover provided (i.e. a proportion of the contract of insurance's exposure that relates to the time on risk);

  2. (2)

    a proportion of the commission paid to the insurance intermediary sufficient to cover that insurance intermediary's costs; and

  3. (3)

    a proportion of any fees charged by the insurance intermediary, which, when aggregated with any commission to be repaid, would be sufficient to cover the insurance intermediary's costs.

ICOB 6.4.6G

In the event that a retail customer exercises his right to cancel, the amount described in ICOB 6.4.3 R(2) will normally be retained by the insurer (although in some circumstances it could be retained by the insurance intermediary). The insurer and the insurance intermediary should, therefore, agree the terms by which the insurer reimburses the insurance intermediary (or the reverse).

ICOB 6.4.7G

In calculating the charge in accordance with ICOB 6.4.3 R(2), an insurer should use a reasonable method of estimating the proportion of the contract of insurance's exposure that relates to the time on risk.

ICOB 6.4.8G

In most cases, the FSA would expect the proportion of the insurance contract's exposure that relates to the time on risk to be a pro rata apportionment. However, where there is material unevenness in the incidence of risk, the insurer could employ a more accurate method, which may result in a lower or higher charge to the retail customer. In such cases, the insurer may charge what it believes to be a reasonable sum, but it should bear in mind that the sum should not exceed an amount commensurate to the risk incurred.

ICOB 6.4.9R

Where an insurer has made a charge for services provided in accordance with ICOB 6.4.3 R(2), the sums and property referred to in ICOB 6.4.3 R(4) must not include any money or property that the insurer has provided to the retail customer in connection with a claim.

ICOB 6.4.10R

Any sum payable under ICOB 6.4.3 R is owed as a simple contract debt, and any sums payable in respect of the cancellation of the same contract may where relevant be set off against each other.