You may have heard about a change in the law regarding insurance and wondered what it means for you and your business, this guide will hopefully help you understand it.
The new Insurance Act will come into force on 12th August 2016, and will provide a more up-to-date framework for commercial insurance in the UK, it will apply to all commercial policies taken out, renewed or amended from this date. The act focuses on fairness, transparency and certainty over the rules that govern contracts between commercial policyholders and insurers.
Currently you’re required to tell your insurer all the ‘material facts or circumstances’ they need to know about you and your business, the new act still requires you to do this but now insurers must seek clarification on anything you’ve told them which may be important to them where that information is unclear to ensure that the policy works as you would expect it to in the event of a claim.
The main changes fall into 3 areas:
1. Fair Presentation of Risk
Before taking out an insurance policy you will need to make a ‘fair presentation of the risk’ to the insurer, this basically means you have to give the insurer accurate details of matters that would affect their underwriting decision, this needs to be done in a clear and accessible manner. This will include a range of information about you and your senior management team, as well as information about your business, what it does, and how it does it. This will help Insurers better understand your business and be able to provide the widest cover to you., at this point if your insurer has any questions about your business they will ask you for more information. You don’t need to tell them information that is considered common knowledge. Your insurer will then agree to provide cover based on the information that you have given to them as well as information they have gathered themselves.
2. Proportionate remedies
This change will impact on how the policy works in the event of a claim or if a fair presentation of risk has not been made. In the past a policy may have been cancelled back to its inception date, with all claims refused, if not all material information had been given, or was incorrect, even if this was unintentional. The new act will change this, it is still vital you provide the insurer with all the correct material information, but. If you don’t’ and your failure was not deliberate or reckless, then a ‘proportionate remedy’ will apply.
If, knowing all of the necessary information from the start, the insurer would not have offered you cover, they may cancel your policy, refuse all claims and refund you premium. However, if the insurer would have still offered you the cover, based on the new information, then they must pay your claim based on the cover, premium and terms that they would have required has all the information been given at inception, with payment of the claim being proportional to the cover you actually purchased.
If the failure to give a fair presentation was found to be deliberate or reckless, the insurer has the right to cancel your policy from inception, refuse all claims and retain any premium paid.
3. How warranties work
Warranties are terms in your policy that require you to do something, for example setting your intruder alarm when your premises are closed. Previously if you had not strictly complied with a warranty then the law said your insurer was discharged from all liability. This meant that, even if you had set your burglar alarm on the day of the theft but didn’t always use it, insurers could have refused to pay the claim on the basis you had nor complied with the warranty.
The new act is much fairer, because in the same circumstances, as long as your burglar alarm was set at the time of the theft, your claim would be paid. It is important that you comply with all warranties, conditions or obligations on your policy, to ensure you benefit from the full cover of your policy.
What you need to do to comply with the Act.
What will Kennetts do to comply with the Act.
We feel the Act is important and will continue to work closely with you to improve our understanding of your business, as well assessing your insurance needs will also help you understand the type of information which may be relevant to disclose to ensure your obligations are met.
Aviva Insurance have produced a customer guide to help provide you with more information.
Should you wish to discuss any element of the new Insurance Act and how it will affect you, please do not hesitate to contact us.