New Insurance Act for Commercial Clients

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By Georgina Bailey
Marketing Executive

There is a new Insurance Act which will come into effect on 12th August 2016, the new Act provides more up to date framework for commercial insurance and will apply to all commercial polices taken out, renewed and amended from this date.

The new Act focuses on “fairness, transparency and certainty” over the rules that govern contracts between commercial policyholders and insurers. At the moment you need to tell your insurer all the material facts/circumstances that they need to know about your company. You must still do this but your insurers must seek clarification on anything which you have advised them of which is vague. The idea is to make sure that all involved parties work better together to make sure that all the relevant and accurate information is given to your insurer and that your policy works as you would expect if you were to have a claim.

There are Three Key Areas to this new Act:

1. Fair Presentation of Risk

Before taking out insurance you will need to make sure that you give a fair representation of the risk to the insurer. This in turn means that you give the insurer a clear and accessible manner, accurate details of the matter that would affect the underwriting decision. To make sure that this happens it is your duty to make a reasonable search of information available to you about your company. This should include a whole range of information about you and your senior management, as well as information about your company – what it does and how it does it. Think about your insurer have an overview of your company in the widest sense. Wider background knowledge and understanding is just as important to the Insures as what you want to insure. This extra information will help to draw out anything unique about you and your company that your insurance company will need to know.

You can take your time to work with Connect to understand who in your company holds this type if information that needs to be disclosed and how this information is retained for the purposes of auditing. A minimum this will include your senior management e.g. people who play significant roles in making decisions to do with your business or people who hold important information about your company. If your insurer has any questions about your business they will ask you for more information. You insure will agree to provide cover based on information that you give as well as they information they have gathered themselves. But remember to tell your insurer about any changes that happen during the year.

2. Proportionate Remedies

In the past a policy might have been cancelled back to its start date with all claims refused if not all of the material information had been disclosed, or some of it was incorrect, even when this was unintentional. The Act is going to change this, although it is still vital that you provide a fair presentation of risk. However, if you don’t, and it was not deliberate, then a ‘proportionate remedy’ will apply, this does depend on what you’re insurance company if a representation was made.

If your insurance company knew all the essential information from the beginning they would have not offered you the cover, they could cancel your policy entirely, refuse all claims and would return your premium. On the other hand if your insurance company would have still offered you insurance based on the new information, then they must pay your claim subject to the cover, premium and terms that would have been required had a fair representation been made. The payment of the claim would be comparative to the cover you actually purchased. And of course, if you do fail to give a fair presentation of your company that is found to be deliberate it means your insurance company has the right to cancel your insurance to its start date and refuse all claims and keep your premium.

3. How Warranties Work

Warranties are terms of your insurance policy that require you to do something e.g. have a minimum security requirement of 5 lever mortice deadlocks on your premises and make sure they are locked when your business is closed. In the past if you had not followed these warranties then the law said your insurance company was exempt from liability, even if you had your premises lock on the day of a claim but not always previously. Some insurance companies could refuse to pay your claims on the basis you’ve not complied with the warranty.

The new Act is more reasonable because in the same circumstances, so long as you premises was locked and met the minimum security your claim would be paid. It is highly important that if your insurance company states that you have to do or have certain things in order to benefit you – these are known as warranties, conditions or obligations you must make sure you look at these and understand what they are expecting you to do and that you comply. If you are struggling with any of this you can contact Connect who will help you to understand and help if they can adapt them to your circumstances.

To comply with the new Act, you must:

  1. Start to gather all the information you need as you come to your renewal date.
  2. Make sure senior management have contributed to the information so all necessary facts are presented.
  3. Consult with anyone else in your business that has relevant knowledge to the insurance.
  4. Make sure you are ready to answer additional questions from your insurance company if they need to clarify any information given. (Remember you’re responsible for making Connect aware of any material facts).
  5. Ensure you understand and agree with everything Connect has passed to your insurance company so any mistakes can be rectified.

To comply with the new Act, Connect Insurance will:

  1. Work with you to understand who your senior management team is so that we can ensure you have consulted with all parties who may have information that could be helpful to the insurance being arranged.
  2. Help you understand the type of information which may be relevant to disclose to ensure a fair presentation requirements are met.

For more information on the above, feel free to contact us.

Source: Aviva: The year of the Insurance Act