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ICOB 6.1 Application and purpose

Application: who?

ICOB 6.1.1 R

This chapter applies to:

  1. (1)

    an insurer;

  2. (2)

    a managing agent.

ICOB 6.1.2 R
  1. (1)

    Throughout this chapter references to an insurer apply equally to a managing agent.

  2. (2)

    A managing agent must give effect to the policy in ICOB 6 that a retail customer must be offered cancellation rights.

ICOB 6.1.3 G

This chapter sets out the cancellation rights that a firm must offer to a retail customer upon inception or renewal of specified contracts. A renewal only occurs if a further policy is entered into at the expiry of an existing policy. For example, a creditor policy that remains in existence from month to month until the policyholder attains a certain age, until cancelled by either party, or until lapse because of non-payment of premiums would not be considered as a policy with monthlyrenewal under the ICOBrules.

Application: what?

ICOB 6.1.4 R

Apart from the exemptions set out in ICOB 6.1.5 R, this chapter applies to all non-investment insurance contracts.

ICOB 6.1.5 R

This chapter does not apply to the following contracts:

  1. (1)

    a travel and baggage insurance policy or similar short-term insurance policy of less than one month's duration;

  2. (2)

    a non-investment insurance contract, the performance of which has been fully completed by both parties at the retail customer's express request before the retail customer exercises his right to cancel;

  3. (3)

    a non-investment insurance contract that is a pure protection contract of six months' duration or less that is not a distance contract;

  4. (4)

    a pure protection contract effected by the trustees of an occupational pension scheme, an employer or a partnership to secure benefits for the employees or the partners in the partnership;

  5. (5)

    a general insurance contract that is not a distance contract sold by an intermediary who is an unauthorised person (except where the intermediary is an appointed representative); and1

  6. (6)

    a connected contract that is not a distance contract.

ICOB 6.1.6 G

In ICOB 6.1.5 R(1) the 'similar short-term insurance policy' referred to is any contract of insurance where the event or activity being insured is less than one month's duration. The reference to 'duration' is to the period of the cover rather than the period of the contract. So the exemption will cover travel insurance for a fortnight's holiday, even if the insurance was taken out two months before the holiday began. However, if the period of cover includes cancellation of the holiday from the point at which the contract is taken out, the policy will not benefit from the exemption.

ICOB 6.1.7 G

In relation to ICOB 6.1.5 R(2):

  1. (1)

    a contract is not fully completed simply because an event has occurred which allows a claim to be made under the contract (for example, a claim for a cancelled flight or lost baggage); and

  2. (2)

    a contract is fully completed where a claim has been made that leads to the contract being terminated. This could include a total loss claim (for example, a motor claim where the vehicle is written off and this results in termination of the contract).

ICOB 6.1.8 G

For the purposes of this chapter, cancellation refers to the initial period of cover during which the contract may be voided. It does not refer to mid-term cancellation that a firm may choose to offer its customers.

ICOB 6.1.9 G

The cancellation rights described in this chapter apply to all renewals and not just those where there have been significant changes.

ICOB 6.1.10 G

Where ICOB 6.1.5 R applies and there is no cancellation right, a firm should inform the retail customer of that fact in accordance with ICOB 5.3.12 R(1).


ICOB 6.1.11 G
  1. (1)

    This chapter reinforces Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly. In certain circumstances, retail customers who have entered into a non-investment insurance contract will be entitled to a period of reflection during which they can decide whether to proceed with their purchase.

  2. (2)

    This chapter also implements, where relevant, elements of the DMD and the Consolidated Life Directive relating to the cancellation of distance contracts and non-investment insurance contracts that are pure protection contracts.

ICOB 6.2 Cancellation rights and period

ICOB 6.2.1 R

A retail customer has a right to cancel a non-investment insurance contract in accordance with ICOB 6.2, ICOB 6.3 and ICOB 6.4.

ICOB 6.2.2 R

The period of cancellation is:

  1. (1)

    30 days for a non-investment insurance contract that is a pure protection contract; and

  2. (2)

    14 days for a general insurance contract.

ICOB 6.2.3 R

Where the terms of an insurer's contract give a retail customer a longer period to cancel (that is, in excess of the 14 or 30 days specified), the insurer must disclose in the information about the right to cancel the differences between the retail customer's right under ICOB 6.2.1 R and the terms of the contract, which operate independently.

ICOB 6.2.4 R

Where a contract is a mixed contract, that is, it has elements of both a general insurance contract and a pure protection contract, a 30 day cancellation period must apply.

ICOB 6.2.5 R

The cancellation period in ICOB 6.2.2 R must begin on the later of:

  1. (1)

    (for a non-investment insurance contract that is a pure protection contract) the day the retail customer is informed that the contract has been concluded; or

  2. (2)

    (for a general insurance contract) the day of the conclusion of the contract; or

  3. (3)

    the day on which the retail customer receives the contractual terms and conditions and information in accordance with ICOB 5.3.4 R, ICOB 5.3.6 R(1) or ICOB 5.3.8 R in a durable medium.

ICOB 6.2.6 G
  1. (1)

    Where ICOB 6.2.5 R(3) applies, an insurer is entitled to assume that documents have been received in accordance with generally accepted principles of law. That is:

    1. (a)

      that provided the document is sent to the correct address or number, documents posted first class on business day 1 are received on business day 2;

    2. (b)

      that a fax is received when sent, if an appropriate transmission report is generated by the transmitter's machine; and

    3. (c)

      that an e-mail is received when sent.

  2. (2)

    The general assumptions in ICOB 6.2.6 G(1) can be contradicted by a retail customer. In such cases the burden would be on the retail customer to show that the evidence on which the insurer was relying was not correct. If the retail customer could show this then unless the insurer itself had information to suggest that this was not the case, the insurer should generally accept the retail customer's evidence.

ICOB 6.2.7 G

The provisions in ICOB 6.2.5 R(3), under which time may run from the day on which the retail customer receives the contractual terms and conditions and information in accordance with ICOB 5.3.4 R, ICOB 5.3.6 R(1) or ICOB 5.3.8 R, as applicable, would cover situations where:

  1. (1)

    the contract has been concluded by a means of distance communication by which the contractual information could not reasonably have been provided prior to the conclusion of the contract in a durable medium (for example, by telephone) and is therefore provided subsequently; or

  2. (2)

    the contract is not a distance contract and the retail customerhas not received the contractual terms and conditions in a durable medium before the conclusion of the contract.

ICOB 6.2.8 R

If an insurer has provided information in accordance with ICOB 5.3.4 R, ICOB 5.3.6 R(1) or ICOB 5.3.8 R in a durable medium, it need not accept a notice of cancellation if it is served later than the period specified for that contract.

ICOB 6.2.9 R

If a firm does not give a retail customer information about his cancellation rights in a durable medium in accordance with ICOB 5.3.12 R, the contract is cancellable.

ICOB 6.3 Notification of cancellation by the retail customer

ICOB 6.3.1 R

A retail customer who has a right to cancel under ICOB 6.2.1 R may, without giving any reason, cancel the contract by serving notice upon the insurer, its appointed representative or any agent of the insurer with authority to accept notice on the insurer's behalf before expiry of the relevant cancellation period, in accordance with the practical instructions given to him in accordance with ICOB 5.3.12 R.

ICOB 6.3.2 R

Where the notice of cancellation is in a durable medium and served in accordance with ICOB 6.3.1 R, it must be treated as being served on the insurer on the date it is despatched by the retail customer.

ICOB 6.3.3 G

In the event of any dispute, unless there is clear written evidence to the contrary, an insurer should treat the date cited by the retail customer as being the date when the notice of cancellation was given, posted or otherwise sent.

ICOB 6.3.4 G

In order to ensure that a retail customer returns to the insurer any insurance certificate that the insurer may provide as part of the non-investment insurance contract (for example, the motor insurance certificate), the insurer may wish to consider putting the notice of cancellation on the insurance certificate itself and instructing the retail customer, prior to the conclusion of the contract in accordance with ICOB 5.3.12 R(2)(d), to exercise this right of cancellation by returning the certificate. Unless these instructions are given to the retail customer in accordance with ICOB 5, an insurer will not be able to require cancellation to be exercised in this way.

ICOB 6.4 Effects of cancellation

ICOB 6.4.1 R

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 6.4.2 G
  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 6.4.3 R

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 6.4.4 G
  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 6.4.5 G

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 6.4.6 G

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 6.4.7 G

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 6.4.8 G

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 6.4.9 R

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 6.4.10 R

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.