July 26, 2016
The Insurance Act 2015
The Insurance Act 2015 comes into force in August 2016 and is the most significant statutory change to commercial insurance in over 100 years. Its intention is to create a fairer position for all parties involved in commercial insurance.
The new Act applies to all commercial insurance that is subject to UK law and affects you and your business.
What are your new duties?
You have a new duty ‘to make fair presentation of your business risks’ to an insurer. This should be done in a manner that is reasonably clear and accessible. This means you must disclose every material circumstance which is known by you and/or your senior management team or those arranging insurance following a reasonable search.
So what does that actually mean?
A material circumstance is anything which could influence the judgement and decision of an insurer when considering whether to take on a risk and if so on what terms. If you know something or suspect something you should disclose it, you cannot turn a blind eye.
An example of a material circumstance may be a recent arson attack or cyber-attack on your business.
Information should be made available in a reasonably clear and accessible manner. This means only relevant information should be made available.
An example of providing information clearly and in an accessible manner may be providing copies of drivers information where they have any points or convictions instead of providing all drivers information.
You need to be aware of information that may be held by other members of the senior management team or those involved in arranging your insurance. This includes anyone that has a key role in making decisions on behalf of the business even if they do not sit on the board or have a management role.
You will need to ensure you have carried out a reasonable search to ensure that all material circumstances are disclosed. This may involve asking the senior management team or key individuals if they are aware of any material circumstances that you have not been made aware of.
An example of this may be checking with H&S officers if there are any incidents that you need to be made aware of or where business policies are being breached.
What if I do not comply with these new duties?
If you deliberately or recklessly fail to present the risk fairly then the insurer can avoid the policy, retain any premium paid and refuse to pay out for any claims.
If your failure was neither deliberate nor reckless then the outcome will depend on what the insurer would have done had a fair presentation been made. This could include:
- Return the premium paid
- Refuse all claims
- Proportionately reduce payment of claims
Are there any other changes?
The Act has changed the law on warranties making it fairer to you the policy holders. Warranties will not disappear but it will now be harder for insurers to create them and the effect of a breach of warranty will be softened.
Insurers will now no longer be able to rely on a breach of warranty to discharge their liability where the breach is irrelevant to the loss occurred.
If a breach of warranty has been remedied before a loss occurs then insurers cannot rely on it to discharge their liability. A breach will only suspend liability during the period of non-compliance.
What do I need to do?
The most important action you can take is to seek advice. If you are unsure on whether something should be disclosed or not then it is safer to make disclosure. As your broker we can work with you to ensure that fair presentation of your risks is made.
f you have any questions, please get in touch with your usual Wilsons contact.