The Insurance Act 2015 came into force on 12 August 2016. It provides a new framework for business insurance contracts, changing what you need to disclose and how.
What does the new Act do?
It applies to all commercial insurance contracts entered into, and variations to existing contracts agreed, on or after that date. Consumer insurance contracts will continue to be governed by the Consumer Insurance Act 2012.
The Act reforms four areas of insurance law:
- The duty of disclosure in business insurance
- The law of insurance warranties
- An insurer’s remedies for fraudulent claims
- Late payment of insurance claims.
The changes to the duty of disclosure are probably the most significant reforms brought in by the Act.
What’s wrong with the previous duty of disclosure?
Previously, the prospective policyholder was under a duty to disclose to the insurer “every material circumstance” which could “influence the judgement of a prudent insurer” in deciding whether to underwrite the risk, and what premium to charge.
Failure to disclose all of this information, meant the insurer could avoid the policy – refusing to pay any claims that arise.
What is my firm required to disclose under the new Insurance Act?
The duty of disclosure is replaced with a requirement to make a “fair presentation of the risk”. This means that your business must disclose every material circumstance that it knows or ought to know, to reveal the material circumstances.
This applies to disclosures for a new contract, renewals, and mid-term variations.
What you “ought to know” will be assessed objectively and every material representation as to a matter of fact should be substantially correct, and every material representation as to a matter of expectation or belief must be made in good faith.
The onus is then put on the insurer to ask additional questions following presentation of the risk.
Does it matter how my business presents the information?
“Fair presentation” of the risk doesn’t mean that you have to tell your insurer everything it needs to know in a single document –the insurer may need to ask questions about the initial information it receives, so there may be a series of exchanges.
However, it does require that you make the disclosure in a manner that would be reasonably clear and accessible to the insurer.
What happens if something goes wrong?
The remedies for non-disclosure under the Insurance Act 2015 are more proportionate and flexible than those under the previous framework – which allowed an insurer to avoid a policy, even if it would still have underwritten the policy had it had all the right information.
Under the new Act, the insurer will only be able to avoid the policy if it can show that the breach of the duty of fair presentation was deliberate or reckless and, if not, the onus will be on the insurer to demonstrate what it would have done had it received a fair presentation of the risk.
Three key steps to compliance with the new duty of disclosure:
- Review your information-gathering processes to ensure they are efficient.
- Keep records showing you have made reasonable searches.
- Identify everyone within your business responsible for arranging insurance cover, as well as the details of your senior management team – all relevant matters within their knowledge will need to be disclosed.
For Personal Insurance Policies, the Consumer Insurance Act 2012 clarifies what customers need to tell insurers when applying for cover. If you require any further information on how either Act may affect you or your business, Westhill Insurance will be pleased to assist.