Siân French says that communication between underwriters and their customers will be key to success.
The Insurance Act 2015 presents both an opportunity and a challenge for insureds, brokers, and insurers alike. When the Act comes into force on 12 August 2016, it will bring with it the biggest change to UK insurance contract law for more than 100 years.
While the Act is generally a positive step forward for insureds (For example, it will introduce fairer remedies for non-disclosure of information and for breach of warranty), it will have a major impact on policyholders’ disclosure obligations prior to taking out or renewing any (re)insurance which is subject to the laws of England and Wales, Scotland, or Northern Ireland.
For business insureds, one of the most significant aspects of the legislation relates to their disclosure obligations and the new duty to make a “fair presentation of the risk”. Business insureds currently have disclosure obligations, so the Act is not introducing a new concept but, rather, a more prescriptive process that needs to be followed.
Under the Act, business insureds will be required to disclose information they know and ought to know, the latter requiring them actively to search, potentially from a wide range of sources, including outside their organisation. They will also have a new duty to present the information in a reasonably clear and accessible manner. Business insureds will also need to ensure that they have a formalised and well-documented process in place so that they can demonstrate to insurers the process undertaken to comply with the duty of fair presentation, should this be challenged by insurers in the event of a disputed claim. Having an audit trail will be key.
The Act could, therefore, place an increased burden on policyholders, but there is perhaps a greater incentive to succeed, if by meeting the duty of fair presentation it levels the playing field and limits insurers’ ability to seek to avoid a policy or to apply the new regime of proportionate remedies. In order to rely on proportionate remedies, insurers will have to demonstrate what they would have done had a fair presentation of the risk been made. This will require improvements to the way in which underwriting decisions are made and recorded by insurers.
The Act is intended to encourage active engagement by insurers during this pre-placement stage. Insurers will, therefore, need to be willing to discuss the issues arising out of the Act with buyers and brokers in a constructive way, to establish the extent of the information that buyers need to search for and how the data collected is to be presented, especially in the light of the new requirement to disclose all material information in a manner which would be reasonably clear and accessible to a prudent insurer. This pre-placement engagement will be central to ensuring that that all parties have a clear understanding of their responsibilities. The broker, as the intermediary, will have a key role to play in helping to ensure good communication throughout this process.
By working together, the industry and our clients can meet the challenges presented by the Act as we move towards its implementation date in August this year.
Siân French is Coverage Consultant and Senior Vice President, Marsh Ltd.