Is it a coincidence that The Insurance Act 2015 (which is described as the biggest reform to insurance contract law since 1906) is coming into effect on the start of the Grouse shooting season this year? Are insurers and insurance brokers all looking to take shots at each other?
The intention of the Act is to up-date the law in line with best practice in the modern UK insurance market. The result is a level playing field so that it favours neither insurer nor insured.
The role of the insurance broker is already many faceted.
Brokers must have in-depth knowledge of a wide range of risk exposures, where to find and arrange suitable insurance protection, gather detailed information from clients for full disclosure and assess their customers' individual needs, demands and risk profile. The current legislation is based on the "duty of disclosure" but this is being replaced by the "duty of fair presentation". The Insurance Act puts the broker firmly on the "Insured's team" and makes it clear that they must pass on to any relevant party any material information of which they are aware.
The duties created for insurance brokers by the Insurance Act mean they will take on a closer and more onerous role of ensuring that their customer is made fully aware of their obligations to provide a fair presentation.
Interestingly, "data dumping" will not meet the new standards of the Act. Whilst this may sound daunting for some insurance brokers, those firms who have already have procedures that follow good practice are probably complying with the Act already.
There has been debate over the last few months about how the new Act will change (for the better) policyholder protection and whether it will increase the risks to insurance brokers but only time will tell. If the legislation acts as intended then following best practice should keep brokers safe. It should also encourage insurers to behave properly with claims and not wriggle.
There has clearly been a need to change the law. Under the 1906 Marine Insurance Act an insurer has been able to rely on non-compliance with a warranty or condition precedent to avoid a claim (or worse), even if the loss has no bearing to the warranty or other term. Some insurers have been over-enthusiastic when adopting these opportunities and the outcome can defy common sense and fairness. An insurer cannot behave this way under the new Act.
One of the consequences of the seemingly ever-lasting soft market is that many insurances have been written with minimal information and almost tacit renewals. Brokers need to review what information is compiled for insurer presentations and how it's compiled. And if ever there was a time to think about the markets brokers use then that is now. Why place your business with an insurer who only ever looks to wriggle out of claims rather than provide the service that the client paid for? Brokers' E&O policies aren't exposed if the insurers pays - the new Act will make it easier for insurers to decide to pay but could put brokers in the frame with difficult carriers.
Time will tell what possible new risks insurance brokers will be exposed to come the 12th August this year. It makes sense to ensure that risks are placed with insurers who pay claims rather than look for reasons not to. This applies to insurance brokers' own PI policies. Historically this particular area has seen over capacity in the market for many years. Would you want to have your own PI with an insurer who isn't keen to pay a claim?
Come the Glorious Twelfth who else will be in the firing line with the grouse?
Nick Bender, joint managing director, MGB Insurance Brokers