Insurance Act 2015, what does it mean for you?
Understand the big changes in the Insurance Act 2015 and what they mean for your business.
Having come into force on 12 August 2016, the Insurance Act 2015 is designed to modernise how insurers approach key policies for your business. The new act seeks to re-balance your rights and the remedies available when things do go wrong.
The new regime compels insurers to be proactive about making distinctions between material and trivial facts. While full disclosure by you as the third party is still crucial, importantly what the change does is gives you more protection against claims that are rejected by your insurer on a technicality that isn’t applicable to the claim.
This article highlights some of the areas you should review when renewing commercial policies.
At a glance analysis: The main changes
Disclosure of circumstances and risk factors continue to be the core of the new act, however insurers must still be confident about the level of risk they take on in any given commercial situation. The new legislation makes a subtle shift of emphasis for businesses to consider:
- Your primary duty as the insured still includes disclosing material facts you know or ought to know
- In the absence of full disclosure you need to disclose sufficient information that alerts – and under the legislation compels – the insurer to investigate further. This places the onus on your insurer to be more proactive and not simply base your policy terms on assumptions and a one-way flow of information
- The act says it’s unreasonable for an insurer toassume that the policy purchaser in your business has every single material fact to hand – possibly from a multitude of internal sources
- Therefore the act defines ‘ought to know’ as including senior management knowledge, the insurance buyer’s knowledge and other information held elsewhere in your organisation that could be established by a reasonable search
- Presentation of the facts: the information disclosed must be done in a way that gives a clear indication of risk and circumstance to a prudent insurer. This prevents disclosure submissions that are too brief – and submissions that are a blizzard of unsignposted data
- The act also recognises insurers will already hold information about the risk itself, how it relates to the work your firm carries out or the sector in which you work – or the risk profile of your firm if they already insure you
Deliberate or reckless breach:
The insurer can walk away from the policy and keep premiums from the policy commencement – but ONLY if it can prove a deliberate or reckless breach of fair presentation. The onus lies with your insurer, not you.
Non-deliberate or non-reckless breach:
There will be multiple remedies available but the responsibility lies with your insurer to show they would have behaved in the same way regardless.
- Breach information for the risk was available: The claim can be refused and the insurer can void the policy but MUST refund all premiums from inception.
- Higher premium originally chargeable based on the breach data: the insurer can then reduce any claim settlement accordingly.
- Application of new or different terms (e.g. conditions and exclusions, not premiums): the extra terms can be applied retroactively and the policy honoured under those new terms.
Areas to watch out for: contracting out new terms
Under the new legislation, insurers can actually contract out of the act and introduce tougher terms if they choose. (These are called ‘disadvantageous’ terms in the industry).
- While this may sound self-defeating from your point of view as the insured, if your insurer chooses to do this, they must notify your broker – or you directly if don’t have one.
- The act also requires the insurer to check your broker has notified you of any disadvantageous terms – a double-lock in effect.
- Any disadvantageous term applied has to be absolutely clear in its intent and effect – and both its application and explanation must be made plain before you take out the policy.
- Thus you still have the opportunity to shop around before you commit.
What can you do now to align your business insurance needs to the new act?
Take a step back and review your business risk - ask yourself
- Are we giving ourselves enough time to review?
- Are we providing enough detail? Are we providing the right detail? Do we need more input from senior management?
- Are we consulting all and appropriate parts of the business where there’s risk – from staple exposures like public and employers’ liability and professional indemnity to more specialist areas like cyber risk, business interruption and beyond?
- How best do we collate and then present the information for an optimised fair presentation at renewal time?
- How do we demonstrate that we have run reasonable searches – and that those searches are authorised at the appropriate level?
- How do we best check that we are making a fair presentation when it comes to specialist policies that protect individuals – such as directors’ and officers’ liability policies or those covering negligence or malpractice?
There is much to be applauded in the Insurance Act 2015. In the event of disclosure breach it offers you fair and varied options instead of the hard impact that comes with a voided policy. It shares the disclosure responsibilities equally between insured and insurer and is far better suited to how commercial organisation are structured, organised and deployed today.
It makes good business sense to plan early and talk to your broker. The more you involve them the better prepared you will be, and the better case they will be able to make on your behalf and the greater peace of mind you will have. Efficient compliance may also have the happy effect of lowering your risk profile and thus reducing your premiums too.
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