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

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
• 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.

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 through the change and assist you in ensuring you are well placed to meet your enhanced obligations. Let us explain some of the principles and how these will affect you.

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

This is the area of the Act that requires the most review by 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

• We will be reviewing your renewal programme with you earlier than in previous years, to allow more time to fact find and gather all the requested information
• We are currently revising our documentation to include additional question sets, checklist templates and more detailed guidance notes
• We can assist with setting up internal procedures and monitoring programmes to capture the information required
• We can offer compliance support and workshops for staff if required
• We will be working closely with your insurer 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

• 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 event that a fraudulent claim is made by a policy-holder. 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

• 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 we will be discussing this is more detail closer to the renewal of your policy or policies 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.

Click here to see the full wording of the Insurance Act 2015.
Speak to your Centor contact for more information.

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