The Insurance Act came into force in August 2016, with the intention of making the process of purchasing insurance fairer to the insured and better defining responsibilities surrounding disclosure. Seven months in to the new regime, the Specialty Property & Casualty division of JLT Specialty examines how insurers are responding to the changed legal landscape.
The effect of the Act so far
The Act’s introduction represents in many cases a significant gain for policyholders. This is both because it introduces “proportionate remedies” where the insured breaches its disclosure obligations by an innocent non-disclosure or misrepresentation (whereas under the previous regime the more common remedy for insurers was to avoid a policy in its entirety), and also because the Act clarifies the disclosure obligations of the insured via a new duty of “fair presentation”.
This duty requires that the insured provides to insurers prior to the conclusion of the insurance contract all material information known by “senior management” following a “reasonable search” of the information held by the insured and its broker and presents that information in a clear and accessible fashion. Moreover, even if the insured fails to disclose all material information, its position can still be salvaged provided sufficient information has been given to put a “prudent” insurer on notice to make further enquiries.
Of the items highlighted, “reasonable search” is proving to be the most challenging for insureds and insurers alike and is the area that, in our opinion, requires particular attention during the renewal process.
In the table below, we set out a summary of some of the new features of the Act and how we have seen insurers seek to respond to the Act’s new regime:
In our experience to date, the response from insurers has generally been positive. There is an understanding that the new insurance law landscape is more favourable to policyholders than the pre-existing regime and wordings have been adapted to follow the provisions of the Act.
To respond to the new challenges presented by the Act, and as part of our client first philosophy, we are negotiating bespoke clauses in respect of disclosure which will further improve our policyholders’ coverage. In particular, and as highlighted above, our clauses define whose knowledge is relevant, the scope of the reasonable search and seek to further limit insurer’s remedies against the policyholder in the event of an innocent breach of the duty of fair presentation.
Please speak to your client executive for specific guidance on the way in which we can enhance your policy’s coverage or email Felix Ukaegbu, Technical Specialist on firstname.lastname@example.org