Airmic Welcome For Government Insurance Law Reform Bill

Airmic has strongly backed proposed government legislation to reform the law governing commercial insurance published on July 17.

The Insurance Bill seeks to replace the Marine Insurance Act, the century-old measure that provides the framework for all commercial insurance purchased in the UK. The association regards it as out-of-date, out of touch with modern business and potentially places UK industry at a disadvantage internationally. It has been urging reform for several years.

The reforms contained in the Insurance bill cover three main areas:

• disclosure and misrepresentation in business and other non-consumer insurance contracts. The bill amends the duty on business policyholders to disclose risk information to insurers before entering into an insurance contract, introducing a duty of “fair presentation” of the risk. It also provides the insurer with a number of proportionate remedies for breach of the duty of fair presentation
• warranties. The bill abolishes “basis of the contract” clauses, which have the effect of converting pre-contractual information supplied to insurers into warranties without further discussion. It also provides that the insurer’s liability should be suspended, rather than discharged, in the event of a breach of warranty, meaning insurance coverage is restored after a breach of warranty has been remedied
• insurers’ remedies for fraudulent claims. The bill provides the insurer with clear, robust remedies when a policyholder submits a fraudulent claim

"We welcome this legislation as it addresses serious shortcomings in the legal framework. The UK is unique amongst advanced economies in that our current system potentially penalises the purchaser of commercial insurance and creates uncertainty over whether policies bought in good faith will pay out. The new legislation provides much needed clarity, which will be good for business and will help to maintain confidence in the London and UK insurance market," said Airmic chief executive John Hurrell.

The reform follows years of a careful work by the Law Commission led by commissioner David Hertzell. He commented: “The law no longer reflects the realities of today’s commercial practices, which is generating uncertainty and undermining trust in the industry. We are delighted the Government has taken forward the majority of our recommendations in the Insurance Bill.”

The legal framework has been described as ‘unfit for purpose’ as it creates a number of loopholes that give insurers the option to refuse claims for reasons that have nothing to do with the original intention of the policy. Airmic recently published a guide to Insurance Efficacy to help members get around shortcomings in the law, but says that only legal reform will provide a long-term solution.

John Hurrell – warm welcome for measure