Airmic welcomes parliament approval of Insurance Bill; urges policyholders to start preparing

Airmic has strongly welcomed the UK Parliament’s approval of fundamental reform of the law governing commercial insurance. The association’s CEO has urged the insurance market to move quickly in implementing the changes while insurance buyers are being encouraged to start preparing as soon as possible.

The Insurance Bill was passed unanimously in Parliament on 3rd February and is now waiting only for Royal Assent to become law. The vote comes after crucial amendments, including reinserting a clause restricting reliance on breach of warranties, were made to the Bill.

John Hurrell, Airmic CEO, said “We are delighted to see this important Bill complete its passage through Parliament. The provisions of the new Insurance Act brings this country’s insurance contract law for commercial insurance up-to-date and fit for the modern world.”

There is a transitional period of 18 months built into the Bill so the changes will not come into force until the second half of 2016. “So far the UK insurance market has been positive and responsive to the proposed changes so we hope they will choose to move more quickly than this. We shall certainly be encouraging our members to open a dialogue early. This is a big change and for many of our members there will be a lot of work to get their heads around the new law.”

Paul Lewis, partner in the insurance and reinsurance disputes team at Herbert Smith Freehills, agreed.  He said: “This change in law is a real opportunity for Airmic members. To ensure they are in the best position to take advantage of it, they should look to make careful preparations well before it takes effect. I would encourage them to talk to their brokers as soon as possible.”

Similarly, Terry Renouf, partner at BLM, commented: “Although there will be an 18-month transition period, we are only one full insurance cycle away from it becoming law. It’s better to have conversations with brokers and underwriters now rather than as the deadline approaches.”

Referring to new rules on disclosure and the fair presentation of risk, he said now is the time to start thinking about what a “reasonable search” is and what it means to present “clear and accessible data”. “It will be about applying common sense but clearly that creates uncertainty. To avoid misunderstandings, it’s worth agreeing common terms with the underwriter beforehand.”

When it receives Royal Assent, which is likely to happen in early February, the Insurance Act will replace the Marine Insurance Act, the century-old measure that provides the framework for all commercial insurance purchased in the UK, and is the result of years of negotiations. Airmic 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 Bill completed its third reading in the House of Lords on 15 January and moved to the House of Commons with key changes to the Bill. The most important change is the clause restricting reliance on breach of warranties. This means that for a breach of warranty to result in the suspension of a policy, the warranty must be relevant to the claim. Airmic has been calling for this provision to be reinstated after being dropped from an earlier draft of the Bill to allow it to have a smooth passage through Parliament.

Hurrell commented: “Their lordships have taken evidence from a wide range of witnesses, including Airmic, and we are delighted they have reinstated this clause. We welcomed the Bill in its previous form but this is even better news.”

The clause introducing damages for late payments of claims was not reinstated into the Bill. While this will be a disappointment to some in the market, it was considered by Airmic as one of the less important features of the Bill. “This was always at the bottom of our shopping list. It was resisted by large parts of the market so we were happy to see the Bill progress without this section," Hurrell said.

Other amendments that were made to the reform have been summarised in the box below.

Lewis commented that while the Bill is an important change and restores a degree of balance in the law, there is no room for complacency in achieving insurance efficacy. “It is important to remember that the Act does not change the guidance given by Airmic previously that getting the wording of the contract right is of absolute importance. Policy disputes can and still will happen.”

Airmic will be hosting an Airmic Live event on the change in law on 25 Marchgiving members the chance to ask questions about the changes to a panel of experts. More details will follow shortly.