Law Commission proposals on non-disclosure would tighten rules over when an adviser is representing a customer and when they are acting for the insurer.

The changes, included in the report 'Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation' released today, form part of a draft bill on reforming consumer protection regarding insurance.

Under the proposed statutory code aims to clarify when an intermediary is working for a consumer, and at what point they are working for an insurer.

Under 8.44 of the draft bill, the code's ‘general test' lays out the factors used to determine who an intermediary is working for in cases of ambiguity.

An adviser giving impartial advice who conducts a fair analysis of the market and charges the consumer a clear fee is acting for the consumer, according to the bill.

However when an adviser places insurance with only a small proportion of possible insurers, or vice versa, then the adviser is deemed to be acting for the insurer.

Similarly if the insurer allows the agent to use the insurer's name in providing services, markets cover under the name of the adviser, or the insurer asks the adviser to solicit consumers, then under the proposals the adviser acts for the insurer.

Law Commissioner David Hertzell says: "The aim is to clarify the situation but to achieve absolute clarity you would have to accept a high degree of unfairness.

"We accept we can not make any black or white pronouncements as the situations regarding who the adviser is acting for varies."

The draft bill also ditches consumers' duty to volunteer information when taking out a policy, transferring the onus on to insurers to ask the questions they need to get the specific information they want.

If successful the bill would affect all types of cover from life to general insurance and mark the biggest legal change for the industry since the Marine Insurance Act in 1906.

Present law requires consumers to volunteer information about all issues a "prudent insurer" would consider relevant, a duty the Law Commission and Scottish Law Commission report says could trap consumers "who are usually unaware it exists".

Special provisions for group schemes whereby misrepresentation by an individual can not negatively impact on the group also form part of the bill.

The Commission says its proposals would broadly harmonise the legal situation with the ABI's 2008 code of conduct for long-term policies.

The report says the ABI has "confirmed it does not oppose the reform."

Andy Milburn, head of marketing at Munich Re, says along with the RDR the draft bill is just another uncertainty for providers and advisers.

"The Tories could scrap the RDR and the FSA at the next election," he says. "They may not pass this bill and we won't know for two years.