Are you ready for the Insurance Act?

Risk managers should already be preparing to meet the requirements of the Insurance Act, even though it is nine months before it becomes law. The call to action came from Airmic CEO John Hurrell after he and Herbert Smith Freehills unveiled the results of an Airmic survey to the market showing considerable uncertainty among members about the Act's practical implications.

The Insurance Act represents a once-in-a-century change to the legal framework in which companies buy their cover – and it raises the bar for professionalism among buyers, brokers and underwriters alike. A top priority for Airmic is to help its members prepare for what lies ahead. The member survey conducted in October found that;

• 51% of risk managers feared more frequent legal challenges;
• 59% of risk managers have not mapped out what a 'reasonable search' means in their organisation
• 38% are confused as to who should be included in 'senior management'.

Of those who responded to the survey, more than a half (51%) reported that their brokers had yet to produce clear guidance to the Act, whilst nearly three quarters (74%) said the same about their insurers.

Five critical challenges for risk managers

Hurrell went on to outline the five main challenges that risk managers face.  Firstly, buyers must take control of the active disclosure process and engage with insurers at the outset of the renewal process. Secondly, they will need to engage more thoroughly with their senior management. Thirdly, they must control and validate the input of third parties into the procurement process, including suppliers, sub-contractors and brokers. Fourthly, they will have to start the renewal process earlier. Fifthly, it is likely that more risk managers will seek independent legal advice.

A completely new way of doing things

Hurrell repeated Airmic's strong support for the legislation and expressed the view that it would add significantly to confidence that policies would pay out on large claims. He reiterated, however, that buyers and brokers would have to do things differently. “Do not imagine for one moment that these benefits will flow without a great deal of work by policyholders and brokers pre-inception,” he said. “Policyholders who fail to appreciate this fact can expect more frequent challenges on their claims.”

Underwriters and their customers would have to know each other better. The quality and clarity of broking submissions would have to improve. 'Data dumping' – the practice of presenting insurers with large quantities of unstructured information – would not meet the requirements of the new law.  

He went on to speculate that the amount of investment in the planning process required in the new environment might require a rethink about annual renewals, with increased likelihood that the parties would opt to agree multi-year deals.

The Insurance Act comes into force next August. Insurers will no longer be able to use minor or irrelevant discrepancies or lack of 'material information' as a reason to void policies or challenge claims. For their part, buyers will have to demonstrate that they have made a 'fair presentation' of the risk covered, and that the picture they have given underwriters is based on a 'reasonable search' for relevant information within their organisations.

John Hurrell - raising the bar on professional standards

Airmic is to produce a guide to implementation of the Insurance Act towards the end of this year.