The Insurance Act 2015 and Enterprise Act 2016 comes into force from 12 August 2016. Key elements are:
• Introducing a duty of fair presentation of risk for the insured, with clearer guidelines.
• Outlining the remedies available in the event of a fraudulent claim.
• Restricting the use of Warranties by insurers to invalidate cover.
The Enterprise Act 2016 was passed in May 2016. This inserts new provisions into the Insurance Act that will take effect from 4 May 2017. These will impose a duty on insurers to pay claims within a reasonable time, and make them potentially liable for any losses incurred as a result of any settlement that was unreasonably delayed.
The legislation is primarily aimed at issues in the commercial general insurance market. However, it applies to all non-consumer insurance, which includes employee benefit insurance where taken out by employers or pension trustees.
Canada Life does not expect any significant change to Group Risk insurance in practice, as insurers and intermediaries have operated in the manner expected by the Act.
In the Group Risk market, intermediaries have generally presented risk using clear specifications that satisfy the duty of fair presentation and we expect this to continue. There is a duty on the insured to undertake a reasonable search of information they have when preparing these.
It is worth noting this particular wording in the Act (emphasis added): “an individual’s knowledge includes not only actual knowledge, but also matters which the individual suspected, and of which the individual would have had knowledge but for deliberately refraining from confirming them or enquiring about them”.
The duty of fair presentation is met if the information puts a “prudent insurer” on notice that there are some material circumstances that might affect the risk. In these cases the insurer is likely to ask further questions or apply different terms.
Canada Life Group Insurance already follows the ABI guidelines on non-disclosure developed for individual consumers when considering claims. Provided that a client has not deliberately or recklessly misrepresented the risk, Canada Life will aim to put the client in the position that they would have been if they had disclosed the information.
The Insurance Act establishes a formula that sets out the minimum that must be paid if the premium has been underpaid due to a breach of the duty of fair presentation. This reduces the claim settlement in proportion to the underpaid premium.
However, in the Group Risk industry the claim value is typically very high compared to the extra premium. It has usually been the case that the insurer will accept an additional premium and pay the claim in full. Canada Life will continue to do this where it gives a better customer outcome.