You may already know that the all-new 2015 Insurance Act came into force on Friday 12th August but what is it, and how will it impact your insurances?
What is the 2015 Insurance Act?
The aim of the 2015 Insurance Act is to bring the law up to date following a detailed review of the existing Marine Insurance Act of 1906. Like most things, the Insurance Market has evolved to become the market that we know today and after over 100 years, the law needed to be evolved too to make sure there is a fair and balanced regime between insurers and you as the insured.
The Insurance Act 2015 changes the way the law deals with the duty of disclosure for all UK commercial insurance contracts.
What do I need to do?
Just like under the old Act, insurance contracts under the new Act will still be based on good faith and it is your duty to make a fair presentation of the risk to insurers. This includes disclosure of:
– Every material circumstance which as an insured you are expected to know or ought to know about the risk for which you are seeking insurance; or
– Sufficient information to put a prudent insurer on notice that it needs to make further enquires to reveal those material circumstances.
You must make sure that any information you provide is correct to the best of your knowledge and that you have conducted a reasonable search for information. This might require you to obtain or verify information with a number of sources who may hold or have access to important information about your business or the insurance risk.
This may include key decision makers or those with responsibility for arranging your insurance (including us as your broker) or other parties that carry out outsourced functions for your business such as (but not limited to):
– Senior managers and those with accountability for managing functions relevant to the risk
– Persons covered by the insurance e.g. co insured or sub contractors
– Persons normally involved in arranging insurance for the organisation
– Employees who may have in-depth or specialist knowledge on processes and procedures
– Risk managers
– Outsource contractors and service providers
What happens if I make a misrepresentation?
The procedure for a misinterpretation depends on the circumstance.
If you give a misrepresentation of information and it is considered to be deliberate or reckless i.e. you were aware that you were making a misrepresentation or did not care whether or not you were misrepresenting the risk, your insurer will be allowed to avoid your policy. This means that your policy would not respond to any claims you made and you would not receive any refund of the insurance premium.
However, if you make a misrepresentation of information that is not considered deliberate or reckless i.e. you appropriately carried out your duty to make a fair presentation but made an honest mistake or omission, there are a number of remedies which may be applied by the insurer to achieve a fair outcome as follows:
– If the insurer can prove that it would not have written the policy at all, the insurer can avoid the policy but must return the premiums paid.
– If the insurer would have accepted the risk but on different terms, the contract is to be treated as if it included those terms.
– If the insurer would have entered into the contract but charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.
Warranties & Terms
The Act also includes changes to the way that the law deals with insurers rights in the event of breaches of warranties and terms. These changes will affect both commercial and personal insurance contracts.
Clauses which have the effect of turning representations made by you into a warranty will be prohibited under the Act.
An insurer will no longer be able to avoid a policy where a breach of warranty occurs; instead cover will be suspended for the period that you are in breach of the warranty. This means that where it is possible you may be able to correct a situation where there may be a breach of warranty and continue with the insurance policy. However, Insurers will not be responsible for a loss during any period where cover was suspended for a breach of warranty.
The insurer cannot avoid a policy or limit or discharge its liability for non-compliance with any terms which are not relevant to the loss or did not increase the risk of loss which has occurred.
In order to ensure that you remain fully protected, you must continue to advise us of any warranty on the policy that you cannot comply with.
As your insurance broker you can have piece of mind that we are on hand to help you understand your obligations under the Act and to guide you through the process of gathering the information required to make a fair presentation. We will undertake to present this information to insurers on your behalf in a way which is clear and accessible. An insurer may wish to contract out of certain elements of the Act subject to your understanding and agreement and we will advise you of the implications of this should the situation arise.
We will contact you as usual and in good time before your next renewal to formally start the process. In the meantime if you have any further questions about the new insurance act or any other general queries, please don’t hesitate to give us a call on 01564 730 900.