Membership consultation on insurance law launched

Insurance law reform consultation gets under way

The member consultation into law reform hits upon an area that the association regards as vitally important to corporate insurance buyers. “The Law Commission proposals are detailed, and our questionnaire reflects that. However, I would urge our members to take part as this subject really is an Airmic priority. We have allowed three weeks – more time than usual – for them to complete this exercise,” said technical director Paul Hopkin.

Airmic has long been calling for the Marine Insurance Act, or at least its more draconian elements, to be consigned to history. The association argues that, having been drawn up more than 100 years ago, the legislation is hopelessly out-of-date. In particular, section 17 places duties of disclosure on the buyer that are intolerable in an age of multinational companies with operations in many different countries.

If an insured has failed to disclose a material fact, the entire policy can be avoided even if the piece of information was never requested by the underwriter in the first place. A recent report by MacTavish cited the Act as one reason why, in its view, UK commercial insurance is no longer fit for purpose.

The measure has also led to the practice of ‘internet dumping’ where buyers add literally thousands of pages of data to policy submissions – far more than the underwriter could possibly be expected to read. That way the policyholder is more likely, in the event of a claim, to be able to demonstrate disclosure. This tactic was described by a senior judge recently as an illustration of how bad law causes bad practice.

The Law Commission proposals meet many of the concerns expressed by Airmic, which argues that buyers who act reasonably and in good faith should be able to receive compensation even in the event of innocent non-disclosure. The Commission also proposes penalties for insurers who are guilty of late claims payment, whilst acknowledging that this might be difficult to define.

Reaction from the insurance industry has been mixed, with the ABI giving a cautious welcome to the proposals at a recent seminar organised by BILA (The British Insurance Law Association). Kees van der Klugt of Lloyd’s Market Association, however, warned that they could cause an increase in speculative claims and lead potentially to higher premiums for Airmic members.

Speaking at the same event, Airmic chief executive John Hurrell gave the proposals the association’s support. He expressed the view, however, that late payment was less of an issue for members. Generally, he said, there was a legitimate reason when this occurred.

The association’s main concerns centre around non-disclosure, and the level of uncertainty over whether or not claims will be paid. This is especially important at a time when bank finance is hard to obtain except on penal terms, making insurance even more vital than before.

EXTRACT FROM LAW COMMISSION CONSULTATION DOCUMENT ON INSURANCE LAW REFORM

“The duty (of disclosure) is unclear and sometimes poorly understood, while the consequence of breach is too harsh. There is evidence that the duty does not work well in practice. Our proposals aim to clarify how policyholders are expected to comply with the duty when presenting a risk to insurers and to encourage insurers to assist them in that task. We also propose fairer remedies for breach where the policyholder has not been dishonest.”

The Law Commission consultation runs until September 26. Their 230-page document can be downloaded  here