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THE INSURANCE ACT WHAT ARE THE CHANGES & WHAT DOES IT MEAN FOR YOU? The Insurance Act 2015 is the most significant update to commercial insurance law in the last 100 years. Following a fundamental review by the Law Commission in conjunction with customers, brokers and insurers the Act should lead to fairer outcomes for the customer. But there are important aspects which need acknowledging. It is designed to mirror the requirements of a modern insurance market and reflect best practice in the UK insurance industry. From a customer perspective, the Act is a balance between providing the legal basis for fairer claims outcomes in return for a fair presentation of the risk. The Insurance Act 2015 applies to commercial 1 insurances (non-consumers) and will apply to contracts issued, renewed or varied after 12th August 2016.
CUSTOMER DUTY Pre-contractual disclosure: The Duty to Make a Fair Presentation Under the current law, the policyholder is required to disclose all ‘material facts’ relevant to the risk. Material facts are defined as being those which a ‘prudent insurer’ would take into account in their assessment or acceptance of a risk. Failure to comply with this duty allows insurers to avoid the contract, in effect treating the policy as though it had never existed. The Insurance Act 2015 replaces this duty of disclosure with a revised duty to make a ‘fair presentation’ of the risk. This requires the policyholder to undertake a reasonable search of the information available to them and defines what a policyholder knows or ought to know. This means you will need to liaise with key individuals within your business; directors, department heads and other significant decision makers, that have a detailed knowledge of your business operation and risks. The courts will not look favourably on any data dumping of information, so any reference to a website, brochure or accounting data must be clearly signposted to the insurer.
Insurers Responsibility You will see from the above diagram that the insurer also contributes to a fair presentation of risk. In addition, the Act requires the insurer to carefully consider the information presented and to which their underwriters have access and make further enquiries if necessary to gain a better understanding of the risk.
CUSTOMER IMPACT
Basis of Contract Clauses
Warranties
Basis of contract clauses have the effect of converting pre-contractual information supplied to insurers into warranties. Under the Act, basis of contract clauses will be abolished. Going forward, where warranties are applied these must be expressly stated in the policy.
Under the current law, breach of a warranty in an insurance contract allows the insurer to avoid any liability under the policy from the point of the breach, even if this had been corrected. Insurers were also entitled to avoid liability even when the breach was not relevant to the type of loss actually suffered. The Act changes the effect of breach of a warranty so that cover remains in place for a valid claim arising after a breach has been remedied. In addition, breach of a warranty no longer has any effect on insurer’s liability for valid losses unrelated to the breach.
Contracting Out Insurers are able to contract out of the Act, with exception of the basis of contract clauses abolishment. This means that insurers could include disadvantageous terms. The Act has not been created with the intention for insurers to opt out and we believe that we will not see this extensively in mainstream business insurance, only for the most complex and high risk cases.
Insurer’s Remedies for Fraudulent Claims If the duty of fair presentation is breached, the Act puts in place a new range of proportionate remedies which insurers can apply dependent upon the action they would have taken had the correct information been disclosed. If the failure in disclosure is deliberate or reckless, or if insurers would not have entered into the contract at all, insurers remain entitled to avoid the contract entirely. If a fraudulent claim is submitted, Insurers will have the right to refuse any claim arising after the fraudulent act. Previously valid claims are unaffected.
WORKING WITH THOMAS CARROLL In line with this information above, Thomas Carroll will fully support customers with insurance renewals, mid-term adjustments and new ventures. Our team will encourage you to talk to us early in the process, to allow sufficient time to gather and present a fair presentation of risk to the markets, report back to you, so you make informed decisions. Our aim is to provide our customers with a ‘hand holding’ service through the implementation of this Act. If you would like discuss the changes in more detail, please contact your Account Executive or our Broking Director, Simon Bradwick on 02920855233.