The Insurance Act 2015 came into force on 12 August 2016. It
is intended to make for a fairer balance of interests between the insured and
the insurer.
Applying mainly to non-consumer policies where the insured
is an organisation rather than an individual, it extends the requirements of
the Consumer Insurance (Disclosure and Representations) Act 2012 even further
by ordering that you have a duty of disclosure of material circumstances that
you know, plus what you ought to
know. At the very least you must declare enough information to let the insurers
know they need to make their own enquiries.
What you Need to Know
This means you need to make efforts to find out all the
possible risks that you need to disclose, and you should keep comprehensive
records of this research, what it has revealed and where you acquired it. Often
the knowledge you need doesn’t lie with just one person. Any member of your
senior management team may be privy to it, also your risk managers and anyone
else responsible for the company’s insurance, including external sources such
as an insurance broker. To a lesser extent, this applies to individuals as
well.
Disclosures must be clear, structured and relevant. You
can’t just dump a load of documents on the insurers for them to sift through
and find what is pertinent. Unless your presentation is indexed and signposted
in a coherent structure, it will not be considered adequate. Nor should it be
too brief, vague or ambiguous, as is pointed out in the Explanatory notes to
the Act.
Permitted Penalties of
Non-compliance
If you fail to find out and disclose what you should have
found out through diligent research, insurers can penalise you in specific
ways. If anything is proven to be deliberately misrepresented, the insurer can
avoid the policy so that it is ineffective. It is unlikely that you will
receive a refund on your premium.
If the misrepresentation is found not to be deliberate, and
you can produce evidence that you tried to ascertain the facts that have since
come to light, the insurer has options based on the situation as follows:
·
If it can prove that the policy would not have
been issued at all if the facts had been known at the time, it can avoid the
policy and refuse the claims, but the premium must be repaid.
·
If the risk would have been accepted and a
policy written with different terms, the contract should continue as if those
terms were included.
·
If the premium would have been higher, claim
settlements can be reduced by an appropriate proportion.
Complying with Warranties
Some insurance contracts depend on action that you agreed to
undertake at the time they were written, such as changing or adding locks or
alarms. The law regarding non-compliance on this has now changed so that
insurers can no longer cancel the policy completely and avoid any claims, but
only suspend the policy when the breach of the warranty is discovered until you
fulfil the requirements. You will then still be insured under the same policy.
It will, of course, be advisable to document proof of compliance with the
warranty with relevant dates noted.
Wise small business owners will want to be confident that
they have the right evidence in place regarding both their disclosures and
their warranties. You can always turn to your local bookkeepers for help on
these issues. They will be delighted to give you the benefit of their
experience with helpful advice and support.
