On 12th August 2016 the new Insurance Act 2015 came in to effect.
What is The Insurance Act 2015?
A new legal framework affecting every business insurance policy placed renewed or amended after August 12th 2016. It represents a subtle change to the basis on which insurance policies are founded.
Why a New Act?
The Act is intended to modernise the current insurance law and aims to simplify and make fairer the process of dealing with Insurers in the event of a claim. Previously Insurers were able to avoid an entire policy if there had been a non-disclosure of material information. The new Act introduces proportionate remedies and is a balance between providing the legal basis for a fairer claims outcome, in return for a fairer presentation of risk.
What does this mean for you?
The key aspect from your point of view is the accuracy of the information you must provide. A new duty of “fair representation” is being introduced replacing the general obligation to disclose all material facts i.e. this means it is imperative you provide us with as clear, correct and up to date information as is possible.
What counts as fair?
The Act sets out what you must do in order for the information you provide to count as fair. Based on your business circumstances and for the avoidance of doubt you will need to show:
1. A Reasonable Search has been conducted:
You must make adequate/reasonable enquiries within your business and amongst any relevant third parties (e.g. external contractors) to identify and verify information relevant to the risk concerned. You must also include all relevant knowledge of your “senior management” and insurance advisers.
2. Your Presentation of Risk is Clear & Accessible:
The information you supply should be easily understood – notable points should be drawn to underwriter’s attention including highlighting unusual activities and/or known areas of concern that could influence an underwriter’s decision.
Any intentional withholding by you of material information will be considered a breach of the duty of fair representation.
Is there any information I do not need to disclose?
It is not necessary to disclose information already held by underwriters, provide knowledge a competent underwriter might be expected to know already or supply information which is regarded as “Common Knowledge”.
How does this affect me?
You are now under a stronger duty to disclose every material circumstance that you know or ought to know about or provide sufficient information to put a prudent underwriter on notice that further enquiries may need to be made to reveal all the circumstances. In practice most relevant information is already collected as a matter of course however for your own protection and to comply with the new Act we may find it necessary to ask you a few more questions or ask you to complete a form either at renewal, at the start of new contracts or when a change occurs. You may also notice some changes to your future policy wordings.
How does this affect your Insurer?
Your Insurer must now show that he would have acted differently if you had made a fair presentation.
- Insurers liability will only be suspended (rather than completely discharged) where a breach of warranty has some direct bearing on the actual loss by increasing the risk of the loss occurring. A breach of any other warranty will no longer automatically terminate your policy i.e insurers cannot now refuse a claim for a flood if the Fire Extinguisher warranty has been breached.
- Where a deliberate or reckless breach of fair representation occurs, your insurer can still avoid the policy and retain any premium paid, but under the new Act the onus will be on your insurer to show that a qualifying breach was deliberate or reckless i.e. this is seen as a fairer system – In order for your insurer to decline a claim they will need to show you deliberately omitted some required information.
- If it is found you have inadvertently omitted relevant information that would have affected the pricing of your policy, in the event of a claim, your insurer must treat the claim in the same way as if there had not been any information omitted, but your insurer is allowed to make a financial adjustment i.e. your claim cannot be refused if you haven’t told insurers all the necessary facts, but if the missing information would have influenced the insurers decision to charge a higher premium, any claim settlement can be reduced proportionately.
- Insurer remedies for fraudulent claims are clarified so they will remain liable for all legitimate losses suffered before any fraud i.e. your insurer may terminate the policy with effect from the date of the fraudulent claim but any previous claims are unaffected.
The new Act aims to make seeking payment from Insurers simpler and fairer in the event of a claim, provided you can show you have made every effort to present your risk fairly.
What should I do now?
Nothing, but at renewal or if a significant change is made to your policy after August 12th 2016 you will need to ensure you satisfy the new law and that adequate and effective corporate governance and communications are in place where necessary. For example, you may need to ensure a reasonable search is undertaken to reveal material information and that this is communicated and documented in a manner that is reasonable, clear and accessible. Data dumping would not be considered fair and unusual activities and/or known areas of concern must be brought to Insurers attention.
If you have any questions about the changes, please do not hesitate to contact us or your Broker.