Life Insurance  

New insurance Act keeps policyholders covered

New insurance Act keeps policyholders covered

The new Insurance Act 2015, which received Royal Assent last month, will be the most substantial reform of UK business insurance law in more than a century.

The Act was prompted by concerns that the current law is out of date and imbalanced in favour of insurers, putting the UK’s commercial insurance market at a competitive disadvantage in the global arena.

The new Act seeks to address this in a number of ways by reforming the law on the duty of disclosure, warranties and fraudulent claims (among other issues).

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The impact of the Act should not be underestimated. Although it will automatically apply to insurance policies entered into from August 2016, it is expected that some market participants will seek to take advantage of the Act’s provisions sooner than this. Everyone involved in the placing and underwriting process needs to take note now and invest time in understanding the new legislation to ensure they are fully aware of its implications for their business.

Under the new Act, an insured party is required to make a “fair presentation of the risk” to its insurer. The insured must disclose all material circumstances relating to the risk – as is the current position – or, failing that, give the insurer sufficient information to put it on notice that it needs to make further enquiries for the purpose of revealing any material circumstances. This puts an onus on insurers, who have traditionally been criticised for taking a passive role in the disclosure process. Insurers will be required to be more proactive and searching in their enquiries into the insured.

The burden on the insured to disclose every material circumstance that he “knows” or “ought to know” is retained. The Act, however, prescribes whose knowledge is relevant when considering the knowledge of a corporate: it is only the knowledge of the senior management and those responsible for the insured’s insurance. This would capture risk managers and any employee who assists in the collection of data or negotiates the terms of the insurance.

The insured “ought to know” what is revealed by a “reasonable search”. Policyholders will need to consider how best to conduct a reasonable search, including what information should be collected from whom and, importantly, how the search is recorded should evidence of it be needed at a later date.

The Act also requires policyholders to disclose information in a manner that is reasonably clear and accessible. This is intended to discourage the trend of so-called “data-dumping” when a policyholder bombards insurers with vast quantities of information in the hope that “material circumstances” will be found somewhere within it.

One of the headline changes brought about by the Act is that insurers will no longer be able to automatically avoid an insurance policy if a material fact was not disclosed to them (which meant they could treat it as though it never existed).