The Insurance Act 2015: do your policies comply?

Airmic has issued guidance for members on preparing for the 2015 Insurance Act, which became law last month and will fundamentally change the rules governing commercial insurance when it comes into force next year. The document includes key next steps and urges members to start preparations immediately. Meanwhile, Airmic members have reported a mixed response from the insurance market to the reforms, with some risk managers expressing frustration at the speed of implementation.

The changes being introduced under the Act will provide policyholders with greater protection while bringing the UK in to line with other insurance markets.  Airmic has been calling for reforms to insurance law for several years, and the last four weeks have witnessed a flurry of crucial developments, including:

  • The Bill was unanimously voted through parliament;
  • The reforms received Royal Assent;
  • Airmic has issued guidance for members, covering what they need to know and next steps;
  • Airmic has urged insurers to act swiftly to implement the new rules;
  • Herbert Smith Freehills (HSF) is working with Airmic to develop wordings for policyholders wishing to contract under the new law before the official implementation date in 2016.

With the changes now etched in law, Airmic members have until 12 August 2016 - less than one renewal cycle - to prepare for the reform. The association's new guidance The Insurance Act 2015: What members need to know explains the core changes in three sections: Disclosure, Warranties and Fraudulent claims. It also includes a section outlining what members should be doing next, from reviewing existing policy wordings to attending educational seminars. The guidance can be read here.

CEO John Hurrell has said the most important first step is to start talking to brokers and insurers as soon as possible. "This change in law is fantastic news for our members, we are thrilled with the outcome. But these are big changes and so policyholders should start discussions with the wider market to ensure all sides are interpreting the changes in the same way."

The Insurance Act 2015: What members need to know

Read Airmic’s guidance on the Insurance Act here

Airmic has also been encouraging insurers to implement the law with immediate effect. Hurrell said in a statement last month: "So far the UK insurance market has been positive and responsive to the proposed changes so we hope they will choose to move quickly and not wait 18 months."

The association is, therefore, suggesting members work with their brokers to ensure that contracts written from today are compliant with the new law where possible. To this end, it has announced it is working with law firm HSF to produce a series of wordings that policyholders can use to implement the changes outlined in the Act before the law comes in to force.

The insurance industry has been broadly, if not unanimously, supportive of the reforms, with several insurers having already announced that they will implement the changes early. However, as reported in Airmic News this month, while some members have found insurers supportive, others have expressed frustration with the response from their underwriters. One member, who asked not to be named, said that getting insurance companies to move before a compliance deadline is an uphill task:

"We use large parts of the market in co-insurance and reinsurance, so we are always restricted by whoever moves at the slowest speed," he said. "And we are not seeing any progress among insurers that they really understand the implications of the Act."

By contrast, Bill Brannan, deputy head of insurance at RBS, said he has been laying the groundwork for the changes for the past two years and he has found the market receptive to changing wordings. "Our insurers and brokers took the view that it is not a satisfactory response to say no. The insurers took the view that if they did not act, then we may have seen this as being a negative against them."

Nigel Blore, head of insurance at TFL, was more balanced in his assessment. "We've had some success but some insurers have pushed back. They were happy in principal but didn't want to commit to it in black and white...I'd hope they'd be more willing now it's law."

The full responses of some Airmic members can be read here.

In an Airmic Live call last week, experts from HSF, Zurich, JLT and BLM agreed with Hurrell that conversations with brokers and insurers need to start immediately. David Reston, partner and specialist in dispute resolution at HSF, also cautioned that, although overwhelmingly positive for policyholders, the new law also comes with some potential downsides.

For example:

  • There will be a greater onus on policyholders to present their data appropriately;
  • Whereas insurers may have previously been reluctant to take the draconian measure of voiding an entire policy for innocent non-disclosure, the introduction of proportionate remedies may mean they are more inclined to seek redress in such instances;
  • There may be some examples where current policies give greater protection than the new law, so members should check wordings and not assume the Act is always better.

The Insurance Act has amended the Marine Insurance Act, a measure that has provided the framework for all commercial insurance purchased in the UK for over a century. Airmic regards the old legislation as out of touch with modern business and unfair to buyers, and has been working closely with the wider market to bring about reform.