Insurance Act – as we enter uncharted waters, seven tips on fair presentation.

It is not only red grouse that will need to keep their heads down on 12 August this year. The Glorious Twelfth is also the date when the Insurance Act 2015 comes into effect, imposing significant new obligations on buyers of business insurance. Nigel Wallis of O'Connors law firm offers seven tips for risk managers, focussing especially on the duty of fair presentation.

Without overstating it, this new duty is a bear trap for the unwary and it will not be sufficient simply to say ‘that’s what we pay our insurance brokers for’. You can be fairly sure that your brokers’ engagement terms on this point will be as tight as a garden tap on a frosty morning.

Every insurance buyer will now have to conduct what’s called a ‘reasonable search’ before presenting its information to its insurer. You may not be surprised to learn that the Act gives little or no guidance on what constitutes a ‘reasonable search’.

Information must be provided in a clear and accessible manner, not chucked together in a Tesco bag like most people’s expense receipts - a practice politely termed ‘data dumping’.

Managing directors and finance directors are likely to be the ones having to satisfy themselves and their management group that a reasonable search has been carried out and that the organisation’s insurance submission represents a fair presentation of its risk.

Deliberate or reckless failure to make a fair representation will entitle an insurer to avoid the policy and return the premiums paid. Stating the obvious, this is not a position any wants to be in. Where the failure is not deliberate or reckless, an insurer will be able to ask a court to impose new policy terms or conditions or a higher premium (which, if unpaid, an insurer will be able to set off against any claims settlements). Either remedy could prove extremely serious in terms of balance sheet exposure and even business continuity so this process is not to be taken lightly.

Supporters of the Act argue that the new law will reduce the likelihood of policy disputes. Let’s hope so. One thing i for sure, it will certainly present more work for insurers, brokers and insurance buyers as insurance placement becomes a more technical and contractual process.

So here are SEVEN TIPS for getting yourself ready for your insurance placement post the Glorious Twelfth:

TIP ONE- Engage an insurance broker that genuinely understands your sector and can demonstrate they are fully prepared for the new placement regime. If appropriate, conduct a formal broker tender exercise leading to a negotiated service agreement with specific KPIs linked to your particular needs.

TIP TWO- Tell your broker that you only want to engage in a placement dialogue with quality, rated insurers who can demonstrate a genuine commitment to the spirit and letter of the new placement regime.

TIP THREE- Put internal systems and controls in place to capture and collate all risk information about your business on an on-going basis and make sure your business management systems enable you to produce reliable and meaningful management information reports in a timely fashion when requested by your broker and insurer.

TIP FOUR- Put insurance renewal on your board agenda and make sure that the individual liaising with your broker has sufficient internal authority and powers of persuasion to conduct an effective ‘reasonable search’ for information.

TIP FIVE- Keep your own detailed written record of all conversations and exchanges between you, your broker and your insurer so you can evidence everything you have done during the placement process.

TIP SIX- Invest time and money in your insurance placement. Your insurance policies are some of the most important contacts you will enter into this next year, given the balance sheet protection they afford and the increasing risk of policy avoidance and reimbursement claims by your insurer as a consequence of the new Act.

TIP SEVEN- Read and understand your insurance policies. Not only will they send you soundly to sleep but also stop you waking at three in the morning in a cold, cold sweat.

Nigel Wallis - O'Connors LLP