The Insurance Act 2015 came into force in the UK on 12 August 2016. It has been described as “the biggest reform to insurance contract law in more than a century” and was designed to bring some much needed change to the insurance sector. Some of the key areas that the Insurance Act has affected include remedies for fraudulent claims and changes to the rules governing disclosure. The Insurance Act applies to all insurance contracts and so the impact on the insurance industry has been wide ranging.
The new duty of “fair presentation of risk”
The Insurance Act introduces a new duty of fair presentation of risk with respect to pre-contractual disclosure, requiring business policyholders to volunteer information when entering into an insurance contract. In practice this means that businesses must (a) disclose every material circumstance that the business knows or ought to know about to the insurer or (b) provide enough information to put an insurer on notice that they might need to make more enquiries to get that information. This new duty puts much more focus on the insured to assess its own risks internally and to provide clear information to an insurer.
A positive duty of enquiry for insurers
Insurers are now required to be more proactive in terms of enquiries, as the Insurance Act creates an expectation that the insurer “ought reasonably to know” something if it is known to an employee/agent who ought reasonably to have passed it on. There is also a presumption of knowledge about anything that is common knowledge or which an insurer would be expected to know.
New remedies for breach of duty of fair presentation
The Insurance Act introduces new remedies for insurers where there has been misrepresentation or a material non-disclosure on the part of the insured. For example, where the misrepresentation or non-disclosure was deliberate or reckless the insurer can avoid the policy in place and is also entitled to keep the premium.
Dealing with fraudulent claims
The Insurance Act 2015 doesn’t define fraudulent claims but does set out what action insurers can take in the event of a claim where fraud is involved. For example, insurers can terminate the policy from the date of the fraudulent act, as opposed to the date on which that act was discovered. Terminating on this basis means that the insurer can keep the premium and is not required to return it to the insured.
Making “basis of contract” clauses ineffective
With respect to any contracts entered into after 12 August 2016, the Insurance Act 2015 bans the practice of converting answers in a proposal form into a warranty. The purpose of converting the statements made by the business policyholder would be to enable an insurer to refuse to pay a claim if the information proved to be inaccurate. However, as is the case for consumer contracts too, this is now not possible in business insurance either.
These are just some of the ways in which the business insurance industry is being affected by the Insurance Act 2015. If you’re an insurance agency looking to increase your productivity, get in touch with Mandon Software today on 01708 922850 to find out more about our cutting-edge insurance software.