The Insurance Act 2015 came into force on the 12th of August 2016 and changes the way the law deals with the duty of disclosure for commercial insurance contracts. The purpose of The Insurance Act is to update the current law to reflect the way in which the insurance market has evolved in modern times with the aim being to achieve a fair and balanced regime between Insurers and Insureds.
What is The Insurance Act?
The aim of The Insurance Act is to improve fairness, transparency and certainty around the rules that govern contracts between Insurers and their Clients. It aims to provide legal protection for Clients if they unknowingly give incorrect or incomplete information to their Insurer. The hope is that the Client has taken a policy out with the complete knowledge of how the policy works and what to expect if they have a claim.
Will The Insurance Act apply to your contract?
The Insurance Act relates to non-consumer insurance contracts (I.e. commercial insurance contracts) and will apply to:
Contracts of insurance entered into on or after 12/08/2016.
Variations to contracts of insurance entered into on or after 12/08/16, whenever the original contract was entered into.
Renewal of contracts of insurance entered into on or after 12/08/16, whenever the original contract was entered into.
How will the act change the way you take out insurance?
You will still be required to disclose all material facts to your Broker when getting quotes for your insurance, but The Insurance Act also requires the broker to ensure they have clarified any information given to them by you if any of it is unclear or non-specific. The idea behind this is that it compels the Broker to be more proactive in gathering information about your business that may be pivotal to the cover you are being offered, and more importantly, it gives you as the Client more protection against claims being rejected by Insurers on a technicality that isn’t relevant to the claim.
What responsibilities fall to the client under the new act?
Before you take an insurance policy you will need to ensure that you have made a fair representation of risk. This would mean that you have given the Insurer accurate details of any matter that may influence their decisions when underwriting your policy in a clear and accessible manner. The responsibility has been placed on the Client to make a reasonable search for information about the business to allow the Insurer to know the business in its widest sense.
This can involve:
- Ensuring that your Broker is aware of who it is in your business that holds the relevant information which needs to be disclosed and how it is audited. This will usually be a member or members of your senior management team, though that could also include (but is not limited to) your accountant or administrator.
- Providing information in as clear and accessible manner as possible, ensuring adequate signposting of any important information that you feel is relevant to the policy being proposed.
- Making sure that your Broker is aware of any changes to your circumstances during your policy period as cover will be provided on the basis of the information originally provided and it is your responsibility to keep your broker informed of any changes made to that information.
What changes are being made to how Insurers handle claims?
The Insurance Act has introduced proportionate remedies for dealing with claims when there has been a misrepresentation of fact.
Before The Insurance Act came into place, all claims may have been refused and a policy may have been cancelled with effect from its start date if all of the relevant information had not been disclosed, or was incorrect, even if it was done so unintentionally. The Insurer would also be within their rights to retain any premium paid to them. The new legislation now means that a “proportionate remedy” will apply if a fair presentation of the risk was not given and the failure to do so was not deliberate or reckless.
- The policy may still be cancelled and the claim refused if the Insurer would have refused your policy initially had all of the relevant information been disclosed, but under The Insurance Act you would be issued with a return of your premium.
- If the Insurer would still have offered cover under the newly disclosed circumstances then they must pay that claim based on the cover, premium and terms they would have originally issued that policy under had a fair presentation of risk been given at the beginning of the policy, and the payment of the claim would be proportionate to the cover you actually purchased. For example: If you paid £1000 for a policy that would have cost you £2000 had the presentation of the risk been accurate, then the Insurer would pay you half of the claim. Also, if the insurer would have applied different terms to the policy had a fair presentation been given (such as a higher excess) then these terms would also apply.
- Any failure to provide a fair representation of risk that is found to be deliberate or reckless would mean that your Insurer can cancel the policy with effect of its start date, refuse to play a claim and also retain any premium you have paid for that policy. The onus lies with the Insurer to prove that the Client had been deliberate or reckless when presenting the risk, not the Client.
A warranty is a condition applied to your policy which requires you to do something, such as ensuring your burglar alarm is activated when the property is unoccupied overnight. Prior to the Insurance Act coming into force it was possible for an insurer to refuse a claim on the basis of that condition not being met, even if the claim reported was not connected in any way to the warranty in place (e.g. refusing a flood claim because the burglar alarm was not activated overnight).
Under The Insurance Act warranties will only apply to the specific circumstances of the loss (for example; an intruder alarm not being operative when there is an alarm warranty on the policy will not affect a flood claim). Instead Insurers can suspend specific areas of a policy if that warranty isn’t being met until the situation has been rectified by the client (e.g. suspending theft cover while your burglar alarm is not working) without it effecting other areas of your cover.
In order to ensure that you remain fully protected you must continue to advise your broker on any warranty on the policy that you cannot comply with.
What can you do to ensure you are compliant with the Insurance Act?
- Make sure that you have given yourself plenty of time before accepting a policy to gather all of the relevant information required.
- Seek confirmation from senior management that you have gathered all necessary information.
- Consult with anyone else in the Business who may hold relevant information to the insurance you are arranging, i.e. if you are looking to take out Cyber Protection then it may be worthwhile consulting your IT Manager.
- Present this information as clearly as possible to your Broker making sure to signpost anything that you feel may be of significant interest to the Insurers. It is important that your Broker have a true and accurate assessment of your business and the risk involved in insuring it.
- Be prepared to answer further questions from your Broker. You are responsible for making sure they are fully informed of anything that may be relevant to your cover.
- Make sure that you fully understand the information being given to you by your Broker. If you are uncertain of anything they have said or written in your documentation, it is important that you ask as many questions as needed to ensure you are getting the cover you need as it is you who will be singing off on that information and making your policy contract certain.
What are ALDIUM doing to assist their Clients with The Insurance Act?
As your Insurance Broker you can rest assured that we are on hand to help you understand your obligations under The Insurance Act and to guide you through the process of gathering the information required to make a fair presentation.
- Provide guidance to our Clients on The Insurance Act itself and any new responsibilities on their part.
- Review existing policies to assess the impact The Insurance Act has on them
- Review any renewal terms and make our Clients aware of any changes Insurers are making to their policies as a result of The Insurance Act.
If you wish to read The Insurance Act in full you can do so here: http://www.legislation.gov.uk/ukpga/2015/4/contents/enacted
If you have any concerns or questions regarding The Insurance Act, please call the Care Team at ALDIUM on 0151 353 3868.