Airmic urges insurers to get their Act together

Airmic chief executive John Hurrell has urged the insurance market to “wake up” to the realities of the 2015 Insurance Act, and to move with “urgency” to ensure the transition to the new regime is a success.

Writing in Post Magazine, Hurrell said that not everyone has grasped the full significance of the new legal system, which will provide greater protection for policyholders when it comes into force in August next year:

“The reforms extend well beyond legal process: they will result in substantial changes to market practice as a whole, something that will significantly affect underwriters, brokers and policyholders alike. From our conversations with the market, we would suggest that this shift is currently being underestimated by many.”

Hurrell added that market-wide cooperation to prepare for the changes will be needed well in advance of the August 2016 implementation date if the transition is to be successful, noting that “all affected need to recognise this with some degree of urgency.”

Fundamental changes to underwriting process

In particular, he argued that the new disclosure requirements under the fair presentation of risk clause could “significantly alter the current underwriting process”.

The disclosure changes will place new obligations on both the buyer and the seller of the policies. The buyer, for example, will have a duty to disclose every material circumstances they know or ought to know, and ensure the information is presented in a clear and accessible manner. 

Meanwhile, once the buyer has presented their risk information, the onus will then fall on the insurer to make sure they have asked all further relevant questions – before the inception of the policy. 

In his article, Hurrell argued that this change will have two notable implications: first, that underwriters will no longer be able to rely on retrospective claims underwriting; and second, that the whole process will have to adapt to ensure that both sides of the negotiation are satisfied that the full nature of the risks have been thoroughly disclosed and understood, leading to a more “iterative” underwriting process.

Shift in mindset and skillset

“This changes a practice that has been in place since the current regime came into force in 1906, and it will require a significant shift in mindset and skillset,” Hurrell wrote. “This will take time, especially during the first few renewal rounds when uncertainty will be high. We are therefore encouraging our members to start the process by at least two months earlier and similarly underwriters may wish to consider asking questions well in advance of the renewal.“

Feedback from Airmic members and the wider market has indicated that there is a high level of uncertainty about what will be required under the fair presentation of risk clause. The association announced last month that it will therefore be issuing guidance aimed at unpicking the legal wording and offering practical advice on how to meet the disclosure requirements described in the Act.

Market-wide cooperation

Airmic is encouraging all players in the market to engage in conversation well in advance of the Act coming into force to minimise differences in interpretation and to allow for a smooth transition next year. Over the coming months, the association itself will be having a series of discussions with members, insurers and brokers to help facilitate a common understanding, as well as hosting a roundtable in September to debate the key issues.

One of the concerns of insurance buyers is that the uncertainty of the new regime may prompt underwriters to request an unmanageable level of information. In his article, Airmic’s chief executive warned that this approach is “in no party’s interest” and instead urged the market to come together well before the implementation date to establish “a common understanding of what market practice should look like”.

Hurrell: “The market must work together”