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22 June 2016

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The Insurance Act 2015 – How Centor will be working with our Managing Agents


The Insurance Act 2015 comes into force in August 2016, bringing about the biggest change to English insurance law in over a century. The Act will implement reforms recommended by the Law Commission and will modernise current insurance contract law, with the intention to:ensure better exchange of information between insurer and insured.

  • ensure better exchange of information between insurer and insured
  • reduce the number of disputes, saving legal costs and avoiding “disruption for both insurer and insured”
  • reduce the number of claims rejected
  • increase confidence in the insurance sector domestically and internationally

It will impact on how commercial insureds and insurers approach policies, and on the role of insurance brokers and other parties responsible for insurance, such as Managing Agents, which is more clearly defined with enhanced obligations.

Preparation in the industry to implement the principles of the Act are taking shape and gathering momentum and this includes our strategy and approach as your broker. You can be confident and secure in the knowledge that we are well placed to transition you and your clients through the change and assist you in ensuring you are well placed to meet your enhanced obligations.

We have put together the following information, which sets out in more detail some of the main principles, how these will affect you and your clients, and Centor’s implementation measures.

Duty of Fair Presentation

Currently, every material fact known (facts which would influence the judgement of a prudent underwriter), should be disclosed to insurers. This is known as the duty of disclosure. If material facts are not duly disclosed; the insurer is entitled to avoid the policy and refuse all claims under it.

As of 12th August 2016, the duty of disclosure will be replaced with a duty of fair presentation. This relates to all information or circumstances that are material to the risk, which must be disclosed prior to a contract being entered into.

What this means for you and your clients

This is the area of the Act that requires the most review by Managing Agents and policyholders and the area we will be focusing on with you, as your broker. A broad definition has been provided in the Act that:

  • All material information and circumstances must be provided to an Insurer
  • This information needs to be accurate and in an accessible format to fulfil this obligation.
  • This includes knowledge known or ought to be known
  • This includes knowledge of Senior Management and those individuals who play significant roles in the making of decisions and those aware of strategic risks within the business. For larger policyholders, this may include a large number of individuals across a number of different countries. You will be required to review your corporate structure and identify those individuals that fall within the scope of senior management and those responsible for the arrangement of insurances.
  • That a reasonable search has been conducted
  • A fair presentation of material information should prompt an insurer to request additional information in areas where they require a better understanding of the risk.

Centor’s Approach – Implementation Measures

Timing – We will be reviewing your client’s renewal programme with you earlier than in previous years to allow more time to fact find and gather all the requested information. More time is likely to be needed as new processes prompted by the Act are bedded in, and also more generally to ensure all elements of ‘fair presentation’ are met and that all underwriting queries are followed through.

Record Keeping and Documentation – We are currently revising our documentation, which will include updated quote and renewal information forms, and statement of fact documents. These will include additional questions regarding typical information required by underwriters to assess a risk and provide a contract certain quote. We need your support and co-operation as the point of contact with the policyholder, particularly when renewing the back book business (historical risks on cover), in obtaining any missing key pieces of underwriting information. This will ensure we have done all we can in obtaining material information and circumstances from clients and that this is correctly documented within our records for future reference. There will undoubtedly be more work required for some risks at the first renewal subject to the Act. Preparation, timing, co-operation and working together are key to minimising the administrative impact to us all.

Compliance Assistance – We can offer compliance support and workshops for staff if required. We can assist you with setting up internal procedures to transition through this period and help you meet your enhanced obligations under the Act. You will need to be able to demonstrate satisfactory internal procedures and record keeping to satisfy insurers and the Courts if challenged,  that as a entity/person responsible for the insured insurance programme  you have competently endeavoured to seek out all relevant information and circumstances and that you ‘ know your client ‘and the risks to be insured

We will be working closely with insurers to ensure all information is conveyed and understood.

Changes to contract clauses

Under the Act, a breach of warranty will no longer automatically terminate the policy. A breach will instead lead to a suspension of liability until the breach has been remedied. If a breach can’t be remedied, the policy will remain permanently suspended.

The changes with regards to warranties should prevent situations whereby an Insurer can repudiate a claim where the loss is unrelated to the breach of warranty. For example, where there is a security warranty on the policy to install a burglar alarm and that is not done, insurers will not be able to refuse to indemnify in the event of a flood loss. However, as mentioned previously, this could affect the claim if the warranty had some bearing on the loss that occurred i.e. theft loss occurring when a burglar alarm was not fully functional.

Centor’s Approach

  • More detailed information is available on our website to read in respect of how insurer remedies will change for different types of breaches and duties and a link is available at the end of this page.
  • We will be happy to discuss these in more detail with you, when we begin the process of reviewing your renewal.

Fraudulent claims:

The Act tidies up what happens in the even that a fraudulent claim is made by a policyholder. It means the insurer will be liable for losses up to the date of the fraudulent act, but can terminate the policy at the point when the fraudulent act was committed.

For a group insurance contract, the remedies will only apply in respect of the individual(s) who were fraudulent, not all the insured parties.

Centor’s Approach

  • More detailed information is available on our website to read in respect of how insurer remedies will change for different types of breaches and duties and a link is available at the end of this page.
  • We will be happy to discuss these in more detail with you, when we begin the process of reviewing your renewal.

Contracting out

The Act permits insurers to contract out and introduce their own wording and or terms to replace the Act. In order for these to be enforceable an insurer must be:

  • clear and unambiguous; and
  • sufficient steps must have been taken to draw the term to the insured’s attention prior to policy inception

Centor’s Approach

The majority of insurers are looking to embrace and adopt the Act, however we are aware of a small number of insurers who are looking to alter certain principles, in particular remedies for breach of non-deliberate or non-reckless non-disclosure. If this affects you and your clients, we will be discussing this is more detail closer to the renewal of your policy (ies) and in particular how this would affect any claims settlement. We will also consider alternative insurer placement options for you, with an insurer who has not contracted out.

Speak to your Centor Insurance contact for more information.

Click here to see the full wording of the Insurance Act 2015.