The Insurance Act 2015 represents the biggest change to insurance law in over 100 years. It takes effect on 12 August 2016, and will apply to all business insurance contracts and endorsements made under English or other UK law. Here is MRIB’s guide to what it means to you and your business.
Up until now, commercial insurance contracts were governed by the Marine Insurance Act 1906. As its name suggests, this had become just a little bit out of date. In fact, some of its key features were based on case law that harks back even further – to the eighteenth century – so it had been losing touch with modern business practices for quite a while and many felt it favoured the rights of insurers over the insured’s.
As the new Act aims to reduce policy disputes, businesses should benefit. However, it makes some significant changes to what businesses must now do when purchasing cover, to ensure that insurers will settle any claims in full.
There are three key areas of reform within the Act that will affect businesses:
|Marine Insurance Act 1906||Insurance Act 2015|
|Disclosures||The insured had to disclose all material circumstances they knew about – or ought to have known about. They also had to ensure every material representation to insurers was true.||Redefines the customer duty of disclosure as one requiring a ‘fair presentation’ of risk – a more structured framework for disclosing a reasonable level of detail on every ‘material circumstance’ the insured knows, or ought to know.|
|Warranties||Businesses had to strictly adhere to policy conditions. If they were breached, an insurer could decline a claim – even if there was no connection between the breach and the loss.||If the claimant can show that non-compliance with warranties did not increase the risk of the actual loss, the insurer can no longer exclude, limit or remove its liability.|
|Insurers’ remedies in the event of non-disclosure||An insurer could refuse to pay a claim if the pre-contractual disclosure duty was breached, no matter how trivially.||Fraudulent claims would still be declined outright. However the 2015 Act introduces insurer remedies in the event of non-disclosure.
If the insurer would not have accepted the risk, or would have accepted it on different terms, the 2015 Act allows them to apply a remedy proportional to the scale of the breach. This can range from avoiding the contract and returning the premium, to reducing claims.
A fair presentation should help an insurer easily understand the risk they are being asked to insure.
It doesn’t however mean overwhelming the insurer with vast amounts of information that may or may not be relevant. A fair presentation must provide – in a clear and accessible way – all the information that might influence the terms on which an insurer accepts a risk. While it should not just be a ‘dump’ of paperwork for insurers to sift through, it must give an insurer enough information to properly assess your risk. At the very least, enough for insurers to base further enquiries on.
In other words, helping insurers reduce the amount of time they spend deciphering or chasing paperwork.
Anything your business’s senior management team and insurance broker know, or ought to know, by conducting a ‘reasonable search’.
You don’t have to disclose circumstances if:
In practice, this means businesses will have to give insurers more information – certainly more than answering a few questions on a proposal form or Statement of Fact. It’s therefore important to allow enough time to conduct a reasonable search for relevant information.
What constitutes ‘reasonable’ will very much depend on the nature of your business and the sector it operates in. MRIB can help you establish what information you need to present to insurers.
In practical terms, it means businesses will need to include senior management, who play a significant role in the business’ activities, to be involved in providing appropriate information to the insurers.
Unless the breach is deemed ‘deliberate or reckless’, insurers can no longer flatly refuse a claim. Instead, they can apply a ‘remedy’ which can range from a reduced payout to nullifying the contract and returning premiums – depending on the scale of the breach.
But while these remedies have to be proportionate to the breach, they can still have a serious impact on your business. This is why a fair presentation of a risk is so important.
If you would like to discuss what impact the Insurance Act could have on your own business specifically or go through what information you will need to provide in future please call us on 01494 450011.