The New Insurance Act: How Will It Affect You?

Insurance Law

For over 100 years, contract law governing insurance policies for businesses has remained the same. In an effort to modernise the British insurance industry, new legislation came into force on August 12th 2016, making changes that focus on balancing the interests of both the insured and the insurer. The outcome of this will hopefully mean the reduction of government spending by around £100 million through lower litigation costs over the next decade.

The key points to take away from the amendments that have been made are;

1. Disclosures

The insured are no longer required to disclose anything that may influence insurers in the decision to take them on as a risk or the premium at which they do so. The new Act has a ‘duty of fair presentation’, meaning that sufficient information needs to be disclosed by the insured to instigate further enquiries by the insurer on matters that may be of relevance.

2. Warranties

Under the old Act, a breach of warranty would relieve the insurer of liability, even if the insured could rectify the breach or if it was unconnected to the claim. The new Act dictates that in the event of a breach of warranty, the liability of the insurer is suspended rather than being totally withdrawn. If the insured are able to rectify the breach, cover will be resumed, or if they are able to prove there is no direct correlation between the warranty breach and the claim, the insurer has no grounds upon which to decline cover.

3. Remedies for Fraudulent Claims

The insurer will not be held responsible for paying out against fraudulent claims, and if they wish to do so, they can terminate a contract if a fraudulent claim is made. Payments that are made towards such a claim can be recovered by the insurer but genuine claims made prior to a fraudulent one must still be covered.

4. Contracting Out

If the insurer decides to contract out they will need to take steps to highlight any disadvantages in the term to the insured if they are to be put in a worse position. These terms must be clear and unambiguous in defining the effect that contracting out will have on the insured.

These changes are designed to put both parties on an even footing and additional information regarding the updated Act can be found here and here.