The Insurance Act 2015
I am always mindful not to use SAIFInsight to convey particularly technical issues, but in this instance it seems appropriate as major legislation is set to impact all businesses.
The Insurance Act 2015 comes into force with effect from 12 August 2016, and will apply to every Commercial Insurance Policy where individuals enter into an insurance contract for predominantly or wholly business-related reasons.
Purpose
The main reason behind the Act’s creation is to strike a fairer balance between policy holders and insurers, and it sets these out as principles with the aim of being flexible in its interpretation to cater for everything from larger, complex businesses through to the smallest. Insurance policies have historically contained warranties enabling insurers to discharge their liability even if the breach is remedied. Under the new Act, breaches of warranties can be remedied and they become ‘suspensive conditions’.
This means cover is suspended for the period during which it is not complied with, and then reinstated once the breach has been ‘fixed’. There must be a relevant connection between the breach of any terms (including warranties) the insurers have imposed to reduce the risk, and the actual loss and its circumstances.
Additionally, there are a range of proportionate remedies dependent upon the scale and nature of the breach (provided that the insurers would not have entered into the contract had the breach not occurred). The scale can range from a deliberate and reckless breach which will enable the insurers to avoid the contract and retain premium, through to a breach that is neither deliberate nor reckless and where the insurer would have charged a higher premium.
Changes
The Act creates new duties for insurers and policy holders, and specifically amends the current Duty of Disclosure. This is now referred to as a ‘duty of fair presentation’, and effectively requires commercial policy holders (non-consumers) to undertake a reasonable search of information available to them.
This applies not only at the start of a policy and renewal but throughout the period, including amendments or variations. From 12 August, insurers will have to be able to provide evidence of how they would have acted differently if the breach had not occurred.
Brokers currently have a duty of disclosure; this will no longer be the case, but brokers will have to ensure that they can provide insurers with all the necessary information to accurately reflect the risk to them. This will mean we need to check or recheck the information we hold – see the ‘Practical’ section below.
What is a ‘fair presentation’
A fair presentation meets the following criteria:
• Disclosure of every material circumstance which the insured knows or ought to know – or, failing that, disclosure which gives sufficient information to put a prudent insurer on notice that it needs to make further enquiries
• Disclosure in a manner that makes the matters clear and accessible to a prudent insurer
• Each material representation made as a matter of fact is substantially correct, while each made in relation to a matter of expectation or belief is made in good faith
It is worth adding that the second point above was designed to avoid overly complex presentation, or for reliance to be made on information hidden with a vast amount of material.
Practical
All SAIFInsure clients and prospects will now receive the following from us at either the pre-renewal, renewal invitation or mid-term adjustment stage.
• SAIFInsure Insurance Act notes (both from us and NIG as your insurer)
• Risk Information form (including individual premises details)
• Duty of Disclosure document
• Key Facts document
• New policy wordings