The Insurance Act has recently changed…how will it affect you?
Insurance Act 2015
Customer and Insurer Duties
The laws under which commercial insurance is arranged are changing, creating new duties for insurers and policyholders to comply with. The legislation is seeking to create a new and fairer balance between policyholder and insurer and to raise professional standards when insurance is placed. It is the biggest change to insurance legislation in over one hundred years. The legislation will come into force on 12th August 2016. However, Insurers will have the ability to contract out of parts, or the whole of the Act so long as they disclose this in full whilst providing their contract certain terms.
Changes for our clients
- Policyholders will have to ask anyone benefitting from cover whether they know any material information in relation to the risk. For example; a Directors’ and Officers’ policy could require questioning of anyone in a management capacity.
- All presentations (of a clients’ insurance risks) must be reasonably clear and accessible to the insurer meaning that simply providing a link to a website or sending lots of data in an unstructured format will not meet the new standard. The Act specifically excludes ‘data dumping’.
- There is a new and explicit duty to ask questions of the whole business, not just senior staff, and prior to renewal. The level of questioning and information gathering required to prepare for renewals may increase significantly. This depends on the specific size and nature of the business. Clients should also consider whether any third party service providers i.e. Accountants or IT providers, hold material information pertinent to the insurance risk.
- In the event that key material information is not provided to the insurer and is later discovered e.g. during the investigation of a claim; If the insurer would still have written the risk had they known about this information then the insurer can add in new exclusions or sub-limits that apply from inception of the policy. Insurers could also apply proportionate payments during the claims process if the risk would’ve attracted a larger premium had they been in receipt of the material information at inception.
Clients should expect the process of renewals to last longer than previously, as we learn how these changes will affect the negotiation of terms.
Changes for insurers
- Insurers will lose their historic rights to repudiate claims for breaches of conditions irrelevant to the loss suffered.
- They will also be unable to avoid the policy when material non-disclosure is discovered if they would have still underwritten the risk.
- If underwriters do not read through submissions thoroughly and ask follow up questions before agreeing to accept a risk, then they will waive the right to rely on information that those queries would have revealed.
- Underwriters will need to allocate more time to review each submission and consider the risk.
- If insurers seek to contract out of the new law, they will need to do so in a clear and transparent way that takes into account the type of sale. They will need to clearly highlight any disadvantageous terms.
We continue to assess the differences between the current legislation and the Insurance Act 2015 and how these changes will be incorporated into the market. Our staff will undertake a comprehensive training schedule, which began in February working towards a better understanding of how insurers require information and how claims handling may change. This will facilitate the implementation of new processes and procedures into renewals leading up to the effective date in August 2016. AIRMIC (Association of Insurance and Risk Managers in Industry and Commerce) has produced an excellent commentary on The Act “Insurance Act 2015: A guide to fair presentation” and this is freely available via their website www.airmic.com/technical