Government proposes crackdown on late payment of claims

Airmic has welcomed government proposals to penalise insurers for the late payment of claims unless there are good reasons for the delay.

The measures have been included in the government’s Enterprise Bill, published on 17 September, having been dropped from the (now enacted) Insurance Bill because of disagreements as to how the clause should be implemented. Should the Bill become law, the 2015 Insurance Act will be amended to include the new measures.

If passed, the Enterprise Bill will introduce into every contract of insurance a requirement on the insurer to pay sums due within a “reasonable time”.

The Bill will also:

• Provide a non-exhaustive list of matters which may be taken into account when determining what is a “reasonable time”;
• State that a reasonable time will always include time to investigate and assess the claim;
• Allow for contracting out of the default rules for non-consumer insurance contracts, provided that the insurer satisfies the transparency requirements set out in the Insurance Act 2015 (unless the breach of the term is deliberate or reckless, in which case any ‘contracting out’ term will have no effect).

The UK is currently at odds with most other jurisdictions in that there are no legal means for a business to seek damages in the event of a delay in claims payment. In practice, most large businesses, as represented by Airmic members, have the capacity to survive a claim delay and the clout to resolve their own issues, but for smaller businesses in particular, it can be financially crippling.

John Hurrell, Airmic CEO, commented: “The government’s proposals are both sensible and the right thing to do, and, if passed, will bring the UK into line with most other jurisdictions. As we have said in the past, this has not been a pressing issue for most of our members who represent the UK’s largest businesses, but for smaller companies a delay can be devastating and therefore this is a welcome development.” 

Damages for the late payments of claims was initially going to be included in what is now the Insurance Act. However, while most of the market accepted the need for such a provision in principle, there was a lack of consensus as to how the issue should be addressed, and it was dropped from the legislation to ensure a smooth passage through parliament. 

Following its second reading in the House of Lords, the Enterprise Bill will be subject to committee, report stage and a third reading before it moves to be debated by the House of Commons.