Sunday, 29 March 2015

Insurance Act 2015

March 29, 2015.
On 12 February 2015 the UK Parliament passed the Insurance Act 2015 which will introduce the most significant changes to British commercial insurance law for at least 100 years and, in the view of some commentators, the most significant changes ever.


The Act received Royal Assent on 12 February 2015. It will become effective in August 2016. 
Some leading insurers, however, are already acting on the basis that the new laws are in force. Brokers will, no doubt, be encouraging many others to follow suit. 


The new laws will apply to all insurance other than consumer insurance; they are equally applicable to reinsurance. 

Essence of the changes

The key changes are summarised below. 

1.Placement – Duty to make a ‘fair presentation’

  • The insured must disclose all material circumstances about the risk or give the insurer sufficient information to put it on notice that it needs to make further enquires for the purposes of revealing all the material circumstances about the risk. This will put a greater emphasis on the insurer to ask questions about the risk and to make clear what information it requires. 
  • The insured is obliged to make disclosure in a manner which is reasonably clear and accessible to a prudent underwriter (no data dumping) and not to misrepresent material information.

2.Graduated remedies for breach

  • The single remedy of avoidance from inception for a breach by the insured of its duty to disclose the risk at placement is abolished.Instead there will be a new system of graduated remedies based on what the insurer would have done had a fair presentation been made including: avoidance if the underwriter would not have written the risk at all; different terms of the contract may be imposed (which may mean that some claims which have already been paid have to be revisited);any claims under the contract may be reduced by the same proportion as the actual premium charged bears to the premium that would have been charged; and if the breach of duty was deliberate or reckless the insurer may avoid the contract and keep the premium whatever it would have done in the event of a fair presentation.

3.Warranties and terms not relevant to the actual loss

  • A breach of an insurance warranty will no longer automatically discharge insurers from further liability under the contract. Instead, the contract will be suspended until the breach of warranty is remedied; Insurers will not be liable in respect of losses occurring or attributable to something happening during the period of breach.
  • Where a loss occurs when an insured is not in compliance with a term which ‘tends to reduce the risk’ of loss, the insurer will not be able to rely on that non-compliance to exclude, limit or discharge its liability if the insured can show that its non-compliance did not increase the risk of the loss which in fact occurred in the circumstances in which it did occur.

4.Remedies in the event of a fraudulent claim

  • The insurer will not be liable to pay any part of a fraudulent claim and may recover any money paid in respect of that claim prior to discovery of the fraud. 
  • The insurer may give the insured notice that the contract is terminated from the date of the fraud (regardless of when the fraud is discovered). The insurer can then keep the premium and has no liability for claims arising after the fraud.
  • In the event of a fraudulent claim by one beneficiary under a group scheme, cover for the innocent beneficiaries is not impacted.


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