Understanding the new Insurance Act
The new Insurance Act comes into force on 12th August 2016, representing the most significant change to insurance contract law in the UK for over 100 years. But what does this mean for policyholders?
Basically, the statutory framework governing insurance is changing. The new Act introduces reforms to the laws governing the contract you have with your insurer and, while confusing at first, heralds positive changes for both personal and business policyholders.
When debating the changes, it was argued that, until now, the law was weighted in favour of the insurance company, making it easier for them to resist claims. The incoming legislation seeks to create a new balance between policyholder and insurer. Accordingly, the new Act introduces a duty of fair presentation to resist the existing duty of disclosure. Under the new system, as long as you have informed your insurer of all relevant information in the right way, it is less likely they will be able to resist any claims that arise.
To help facilitate this, the new Act clarifies the information you need to provide to your insurer, effectively requiring policyholders to undertake a reasonable search of information available to them. When taking out a policy, you need to make a fair presentation of the risk, satisfying the following criteria:
Disclosing every material circumstance that the insured knows or ought to know, or failing that, disclosing sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing material circumstances.
Disclosing in a manner that is reasonably clear and accessible to a prudent insurer (no data dumping allowed).
Ensuring every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith.
Previously, your insurance policy could be terminated if you did not disclose all the information deemed material to the risk. Now, in most cases, insurers will be required to pay a percentage of the total claim or impose extra terms into your policy instead of just refusing to pay any of the claim at all.
Additionally, under the new Insurance Act, if you breach your insurance warranty, your cover is only suspended for the relevant part of the policy and only until you make changes to comply with it.Previously, the insurer would have the right to terminate the whole policy automatically.
The new law, rather than being a rigid code, sets out principles to be followed, with the aim of being sufficiently flexible to cater for the smallest business right up to major corporations.
The new duty of fair presentation and the new effect of a breach of the duty of good faith will only apply in relation to contracts entered into on or after 12th August, so you have some time to identify what you need to be disclosing.
Sagar will work with you to explain the requirements of the act and help you identify the information that is required to be disclosed under the Act.
As part of this process, we will gain a better understanding of your business risks, helping to ensure you are properly covered in the event of any claims arising, as well as empowering us to negotiate with insurers.