A consumer has a right to cancel, without penalty and without giving any reason, within:
30 days for a contract of insurance which is, or has elements of, a pure protection contract or payment protection contract; or
14 days for any other contract of insurance or distance contract.
[Note: article 6(1) of the Distance Marketing Directive in relation to a distance contract and article 186 of the Solvency II Directive in relation to a pure protection contract]
The right to cancel does not apply to:
a travel and baggage policy or similar short-term policy of less than one month's duration;
a policy the performance of which has been fully completed by both parties at the consumer's express request before the consumer exercises his right to cancel;
a pure protection contract of six months’ duration or less which is not a distance contract;
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;
a general insurance contract which is neither a distance contract nor a payment protection contract, sold by an intermediary who is an unauthorised person (other than an appointed representative); and
a connected contract which is not a distance contract.
[Note: articles 6(2)(b) and (c) of the Distance Marketing Directive and article 186(2) of the Solvency II Directive]
The cancellation period begins either:
from the day of the conclusion of the contract, except in respect of a pure protection contract where the time limit begins when the customer is informed that the contract has been concluded; or
from the day on which the consumer receives the contractual terms and conditions and any other pre-contractual information required under this sourcebook, if that is later than the date referred to above.
[Note: article 186(1) of the Solvency II Directive and article 6(1) of the Distance Marketing Directive]
If a consumer exercises the right to cancel he must, before the expiry of the relevant deadline, notify this following the practical instructions given to him. The deadline shall be deemed to have been observed if the notification, if on paper or another durable medium, is dispatched before the deadline expires.
[Note: article 6(1) and (6) of the Distance Marketing Directive]
By exercising the right to cancel, the consumer withdraws from the contract and the contract is terminated.
When a consumer exercises the right to cancel he may only be required to pay, without any undue delay, for the service actually provided by the firm in accordance with the contract.
The amount payable must not:
exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract; and
in any case be such that it could be construed as a penalty.
A firm must not require a consumer to pay any amount:
unless it can prove that the consumer was duly informed about the amount payable; or
if it commenced the performance of the contract before the expiry of the cancellation period without the consumer's prior request.
A consumer cannot be required to pay any amount when exercising the right to cancel a pure protection contract.
A consumer cannot be required to pay any amount when exercising the right to cancel a payment protection contract unless a claim is made during the cancellation period and settlement terms are subsequently agreed.
[Note: article 7(1), (2) and (3) of the Distance Marketing Directive]
The amount payable may include:
any sums that a firm has reasonably incurred in concluding the contract, but should not include any element of profit;
an amount for cover provided (i.e. a proportion of the policy's exposure that relates to the time on risk);
a proportion of the commission paid to an insurance intermediary sufficient to cover its costs; and
a proportion of any fees charged by an insurance intermediary which, when aggregated with any commission to be repaid, would be sufficient to cover its costs.
In most cases, the FCA would expect the proportion of a policy'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, an insurer could use a more accurate method. The sum should be reasonable and should not exceed an amount commensurate to the risk incurred.
An insurer and an insurance intermediary should take reasonable steps to ensure that double recovery of selling costs is avoided, particularly where the contract for the insurance intermediary's services is a distance contract, or where both commission and fees are recouped by the insurer and insurance intermediary respectively.
A firm must, without any undue delay and no later than within 30 days, return to a consumer any sums it has received from him in accordance with the contract, except as specified in this section.
This period shall begin from the day on which the firm receives the notification of cancellation.
[Note: article 7(4) of the Distance Marketing Directive]
[Note: article 7(5) of the Distance Marketing Directive]
Any sums payable under this section are owed as simple contract debts and may be set off against each other.
A consumer's notice to cancel a distance contract may also operate to cancel any attached contract which is also a distance financial services contract. This is unless the consumer gives notice that cancellation of the contract is not to operate to cancel the attached contract. (See the Distance Marketing Regulations.) Where relevant, this should be disclosed to the consumer along with other information on cancellation.
