AIRMIC UNVEILS MODEL CLAUSE TO PROTECT CORPORATE INSURANCE BUYERS

New wording “remedies defects in UK’s outdated legal system”

The risk management association Airmic has published its long-awaited model clause designed to protect commercial insurance buyers from the uncertainties inherent in the UK legal system. Its aim is to reduce the possibility of firms having policies avoided by insurers as a result of inadvertent omissions in the underwriting information provided by purchasing organisations.

The clause, drawn up for Airmic by the law firm Herbert Smith, is entirely voluntary but the association expects it to gain acceptance within the market. It has been prepared in consultation with its partners, which include eight of the country’s biggest insurers, and it takes into account their views. The main thrust of the wording is to ensure that only fraudulent non-disclosure can provide grounds for an insurer to avoid a policy

“This clause represents a step change and goes a long way towards making up for the defects in the UK’s outdated insurance laws, which place an almost impossible burden of disclosure on many commercial insurance buyers. We believe it provides more certainty to both parties and will help to underpin the London market as it strengthens confidence in the insurance product,” said Airmic chief executive John Hurrell.

“We expect insurers to use it on a case-by-case basis but undoubtedly a willingness to do so will give them competitive advantage.”

The Marine Insurance Act (1906) provides the framework for insurance law in the UK. It requires the buyer to provide all material information that a prudent underwriter might require even when they have not been asked to do so. The law gives the insurer a ‘nuclear option’ of avoiding the policy in these circumstances even if they would still have been prepared to write the policy if the material information had been provided at the outset.  Airmic believes that this stipulation is no longer reasonable or practical at a time when companies have global operations and ‘ material information’ is changing almost daily A recent report by Mactavish and PwC cited the legal framework as one of the main reasons why commercial insurance in the UK is not fit for purpose.

Airmic is in discussion with its partner-insurers about adopting the clause. It is expected that, at least initially, they may agree to do so on a case-by-case basis rather than providing a blanket guarantee.

At the same time, Airmic is publishing a best practice guide to advise risk managers on how to use the clause and meet their disclosure obligations.

The Airmic annual conference ‘Embracing New Horizons’ takes place June 6-8 in Bournemouth. The association represents more than 1,000 professional risk managers and insurance buyers, including more than two thirds of FTSE 100 companies.

For more information contact Mark Baylis, Complete Communications, +44(0)7775 693994, mark.baylis@airmic.co.uk