The Insurance Act 2015 comes into force from 12th August 2016 replacing the Marine Insurance Act 1906. This fundamentally changes the way in which insurers expect you to provide information relating to your business and its risks. It also amends the way that warranties and other terms operate.
Whilst we will record the information you pass to us, share it with you and help you through this process you must ensure that:
You make a fair presentation of your risk
You must include all facts material to your risk and circumstances. If you are not sure if something
should be disclosed this should be discussed with us.
It must be in a clear and concise format and must be accurate.
You must make enquiry of all senior persons, managers and directors (and if appropriate partners and employees) of your business to ensure that they are aware of this duty and ask them if they have anything to add to the information shared.
You must declare if you have been in previous breach of a policy condition or warranty (for example the failure of an intruder alarm where a policy has an alarm condition).
All directors and senior managers should be aware of the need to disclose personal information, including but not limited to details of bankruptcies, insolvencies and criminal convictions.
The business must advise if it has any solvency issues, including agreements with its creditors.
Failure to make a fair representation of your risk to an insurer could result in your claim not being paid, or the settlement amount being reduced.
Your Insurer’s Responsibilities
There are positive advantages to you as the insurers will agree that:
They will not avoid claims where a breach of a policy warranty or condition is not relevant to the loss that has occurred, for instance an alarm not being in operation when a flood occurs.
Where a breach of their warranties, terms and conditions occurs they will not avoid a claim as long as the breach has been rectified prior to any claim occurring. Previously insurers were entitled to avoid claims in these circumstances.
Basis clauses have been invalidated so insurers cannot avoid claims where a mistake or error has occurred on a proposal form.
They will not avoid claims for non-disclosure where they would have accepted business in the normal course of events. If they would have charged a higher premium the claim may be reduced proportionately.
Warranties, conditions precedent to liability and insurer’s terms and conditions.
Whilst the insurance act 2015 does assist with putting to rights the inequity of insurers being able to avoid claims for breach of warranty, you will still have a duty to ensure that all warranties, conditions precedent and insurer’s terms and conditions are complied with. For instance, if a theft occurs at your premises and your alarm is not working insurers can still avoid making claim payments.
Fraud and “reckless” acts of non disclosure
The position in this respect has not changed. Failure to disclose all information in a fraudulent or reckless fashion will result in insurers being able to avoid all claims and allow them to retain the premium paid.
So long as any failure to disclose was not deliberate or reckless a proportionate remedy is allowed under the law.
This means that:
Insurers must consider what terms and conditions they would have applied if they had known all of the facts
If in the event of the above they decide that they would not have accepted the policy then they are able to avoid the policy and avoid paying claims BUT must return the premium paid
If insurers would have accepted the policy then any additional terms, conditions and premium increases can be applied retrospectively
If a higher premium would have been charged, the insurer is able to reduce any claims settlement proportionately. For instance, if you paid £500 in insurance premiums and should have paid £1,000 your claim would be reduced by 50%
Whilst this is in the main good news for commercial insurance buyers as more claims will be accepted; it does expose businesses to risk in that you are very much in the insurers hands when they are making these decisions.
Opting In and Out of the Act
It is not compulsory for insurers to issue cover under the terms of the Act. If an insurer decides to opt out of the Act totally or just from certain parts of your insurance they must tell you exactly what the implications of doing so are.
Please therefore be very aware of what you are buying and from whom; it could make a big difference to the way in which any claim is handled.
It is therefore imperative to deal with an insurer that has:
a first class reputation, an excellent claims service and a strong financial credit rating (meaning that they are financially secure and should be able to meet all claim payments)
a brand that they would not wish to devalue with bad publicity
a close working relationship with your insurance broker
the capacity to share these decisions as they occur to really clarify where they stand
We at Brownhill Insurance Group will be working closely with all of our clients to ensure that they and their insurers meet their obligations under the act.
Please note that whilst the act establishes principles for the way in which insurance contracts should operate some details of its effect will remain to be decided by judicial decisions over time. For that reason there will be a period during which definitive answers to questions may not be available and it is more important than ever that we work together to help you navigate the potential minefield.
If you have any questions in this respect then please do not hesitate to contact us.
You can also visit out web site – brownhillgroup.co.uk where we have an animated video that we hope will explain the purpose of the new act, a copy of this document is also available to download from our web site if additional copies are required.