YOU may have missed it, but this August the insurance industry underwent its biggest shake-up for over a century with the introduction of a new Insurance Act.
Some have argued that the legislation is the biggest make-over since the 1906 Marine Insurance Act which applied to a wide range of commercial policies.
Back in 1906 the Liberal Party was the party of the British government, Manchester United won promotion to the First Division of the Football League and Finland became the first European nation to give women the vote.
Given the radical changes which have affected the insurance industry, particularly in the last couple of decades when deregulation and the Internet have driven innovation and competition to new heights, it’s surprising that the regulatory framework has taken so long to change.
The implications of the Act will be wide reaching. The British Insurance Brokers’ Association has concluded that the Act will affect every new business insurance policy placed and those that are renewed or amended after the Act came into force on August 12.
The overall objective is to modernise insurance law and make the process of seeking payment from insurers simpler and fairer in the event of a claim.
That’s great news for customers, but what does it mean practically?
The most talked about change refers to a new ‘Duty of Fair Presentation’ which replaces a general obligation on customers to disclose all material facts.
Essentially this means that clients seeking insurance need to disclose “every material circumstance” which they are aware of or ought to be aware of before a contract is concluded.
That said, the burden now is primarily upon insurers to proactively seek the detail they need, rather than expecting clients and brokers to do all the leg work in providing material information.
Although this may lead to greater discussions between brokers and clients about policies, the benefit for clients is that insurers will become more transparent. In turn this means that there will be less risk of misunderstanding between the two parties, with the net result being that customers should get a fairer service.
Not all insurance companies are the same and there have been instances in the past where firms have used the system to refuse claims because the client had failed to provide all material information. The emphasis has now been changed so that the only time an insurer can avoid an entire policy is when there has been a deliberate or reckless attempt not to provide information up front.
The other big plus for business customers is that in circumstances where information has not been disclosed, perhaps due to a genuine oversight, the insurer will be obliged to make a ‘proportionate remedy’.
This could mean that if an insurer would have charged a higher premium had they been aware of all material information before a policy was issued, they may proportionately reduce the amount paid out, rather than not pay out at all.
The new Act also makes changes such as outlawing ‘basis of contract’ clauses which turned information from customers into effective warranties. In some cases this led to some policies being cancelled due to trivial changes.
The overall effect of the new Act should be to provide a fairer balance between customers and insurers, but it will take time for its full implications to be felt and some legal test cases to firm up its boundaries.
We also believe that there will now be a greater onus on brokers to better understand their clients’ business and a better appreciation by customers of quality rather than cost. This is good for the industry, particularly for brokers such as Autoline whose ethos is already aligned with that of the new regime.
It may have taken 110 years for the law to catch up, but it’s a positive step for business insurance generally – hopefully customers and the industry won’t have to wait until 2126 for our next overhaul.
:: Michael Blaney is managing director of Autoline Insurance Group (www.autoline.co.uk)
