Industry News

Mactavish have warned that insurance customers in the UK need to be aware.

The 'Insurance Act' - Are You Prepared?

 

May 2016


That their current risk analysis standards may “fall substantially short” of the compliance implications associated with the incoming 2015 Insurance Act. The Act aims to clarify how companies provide information to insurers and what information is to be provided to them. Under the Act, commercial policyholders must, in future, demonstrate a comprehensive understanding of their insurance risk as they will have what is called a duty of “fair presentation” to the insurer. It will come into force on 12th August 2016.

According to the British Insurance Brokers Association (BIBA), for commercial insurance buyers the Act distinguishes between facts known to the buyers of the insurance and what is known elsewhere in the business, but ought to be accessible by the insurance buyer, should a reasonable search be conducted.

Under the Act, information provided to insurers must be clear and accessible, material facts known to senior management must be revealed and businesses must conduct reasonable searches for additional potential risks.

The Chartered Insurance Institute notes that what constitutes a “fair presentation” will be determined by case law “in the fullness of time.”

At the moment non-disclosure of a material fact means that a policy can be voided and no claims paid, as if the policy had never existed. However, under the new Act, if material information is not provided by the commercial customer to the insurer, then a subsequent claim will not be automatically refused in full – unless it is fraudulent, deliberate or reckless. However, the insurer can still refuse to pay some or all of a claim if they prove that the information not previously disclosed would have cost extra premium, or that they would have applied extra terms to the policy as a result of knowing that information.

The legislation also intends to prevent insurers from rejecting commercial customer claims when the policyholder breaches a condition of the policy which has nothing to do with the claim. For instance if a condition says all trade waste must be swept up at the end of each business day, and it isn’t, then the insurer cannot refuse to pay a claim for flood damage or a theft claim, which they can currently. Taking this further, under the new Act, policy cover can be suspended if you do not comply with a condition, but once you do the cover returns. At present, if you do not comply with certain conditions then no claims will be paid from that date, irrespective of the type of claim.

As a result of the Act, all insurance buyers should leave more time for renewal (particularly data gathering) or they could risk failing to comply with their new statutory duties, as well as missing the opportunity to benefit from the additional defences that the new law will provide.

For a copy of our document ‘The Duty Of Fair Presentation’ – please contact us on 01332 372111  

Sources: BIBA Guide to Insurance Act 2015. Post Online.

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