Changes to the Insurance Act
Anton Hilton • Apr 01, 2016
Forum Insurance outline the key changes to the Insurance Act that you should be aware of which will come into force on 12 August 2016.
New disclosure duties in non-consumer insurance contracts
Insured parties were previously required to disclose every circumstance that they knew, or ought to have known, which would influence an insurer in fixing a premium or deciding whether to underwrite a risk. This required insured parties to predict, without much guidance, what factors a hypothetical prudent insurer would be influenced by.
Part 2 of the Insurance Act has created a new ‘duty of fair presentation’ aimed at encouraging active, rather than passive, engagement by insurers as well as clarifying and specifying known or presumed to be known matters. When the Act comes into force, before entering into a contract of insurance, insured parties will be required to disclose either:
- every matter which they know, or ought to know, that would influence the judgement of an insurer in deciding whether to insure the risk and on what terms (very similar to the current position); or
- sufficient information to put an insurer on notice that it needs to make further enquiries about potentially material circumstances.
Insured parties will be considered to have known, or ought to have known:
- matters that could be expected to be revealed by a reasonable search of information available to the insured party – for example, information held within an organisation or by a broker;
- anything known by a person responsible for their insurance – for example, a broker;
- insured organisations will also be deemed to have the knowledge of anyone who is a part of the organisation’s senior management, or who is responsible for their insurance.
Insurers will be considered to have known, or ought to have known:
- matters known to individuals who participate on behalf of the insurer in deciding whether to take the risk and on what terms – for example, underwriting teams;
- knowledge held by the insurer and readily available to the person deciding whether to take the risk;
- matters known by an employee or agent of the insurer and which should reasonably have been passed on to the person deciding whether to take the risk.
Brokers will no longer be subject to disclosure duties.
Under the Act, disclosure must be made in a reasonably clear and accessible manner, material representations of fact must be ‘substantially correct’ and material representations of expectation or belief must be made in ‘good faith’. Individuals will be deemed to know matters which they suspected and which they would have known about had they not deliberately refrained from confirming or enquiring about it.
Insured parties should review their disclosure processes to ensure that those responsible for procuring insurance disclose all matters they will be presumed to know.
For example:
- consider keeping internal records of the name and roles of individuals responsible for arranging insurance cover, as matters within their knowledge will need to be disclosed;
- senior management should be involved in any disclosures made;
- evaluate the steps taken to obtain information from internal and external sources and keep records to demonstrate that reasonable searches have been made.
Insurers will not be able to rely on a passive approach to disclosure if seeking to exercise remedies for non-disclosure. More active engagement will now be encouraged and, if not in place already, insurers should consider establishing systems and processes to identify when further enquiries need to be made before underwriting risks.
Insurers should review what information is readily available to those who decide whether to accept risks and the terms on which to do so. For example:
- consider keeping internal records of the names and roles of individuals responsible for these decisions;
- establish appropriate processes and lines of communication to ensure that relevant information is shared widely enough with those making decisions to cover certain risks.
Remedies for breach of duty of pre-contractual disclosure
Previously, an insurer was able to refuse all claims under an insurance contract if the pre-contractual disclosure duty was breached, even if the breach was committed by the broker.
The Insurance Act has now introduced a range of proportionate remedies, applicable depending on the scale of the breach and the state of mind of the insurer. These are:
- deliberate or reckless breach: the insurer will be able to avoid the contract and keep any premiums;
- breach is neither deliberate nor reckless and the insurer would not have entered into the contract: the insurer will be able to avoid the contract but must return any premiums;
- breach is neither deliberate nor reckless and the insurer would have entered into the contract on different terms, other than terms relating to premium: the insurer will be able to treat the contract as if those different terms apply – for example, any additional exclusions that would have been imposed;
- breach is neither deliberate nor reckless and the insurer would have entered into the contract for a higher premium: the insurer will be able to reduce the cover to which the insured is entitled on a proportionate basis.
These remedies will only be available if the insurer would not have entered into the insurance contract had the breach not occurred, or would have done so on different terms.
Practical implications from these changes
To bring an action for relief for non-disclosure, insurers will need to be able to prove how they would have acted differently if the breach had not occurred. Disclosure of underwriting guides and other relevant documents may now be required, along with records of underwriting decisions made and factors considered in particular cases. Insurers will need to consider the extent to which they are willing to disclose commercially sensitive information contained within such records or documents.
Changes to contractual terms and warranties: consumer and non-consumer contracts
Previously, ‘basis of the contract’ clauses could convert all representations made in the course of a non-consumer insurance contract into contractual warranties. Breaching a warranty would completely discharge an insurer from liability for all risks covered by the policy from the time of the breach, even if the warranty had no bearing on the risk.
Part 3 of the Insurance Act has now banned ‘basis of the contract’ clauses from non-consumer insurance contracts. Instead of discharging liability, a breach of warranty now results in the insurance cover being suspended for the duration of the breach and re-instated once the breach has been fixed. An insurer will no longer be able to rely on non-compliance with a warranty, or any other term relating to loss of a particular kind or at a particular location or time, if the non-compliance could not have increased the risk of loss that occurred in the circumstances that it occurred. For example, if a requirement in a policy to maintain window locks is not complied with by the insured party and loss is subsequently caused by flooding, then the insurer will no longer be able to rely on the insured party’s non-compliance to avoid liability as the maintenance of window locks could not have reduced the risk of flooding occurring.
This will not apply in respect of terms that define the risk as a whole: for example, terms restricting cover to non-commercial use, rather than a term that relates to loss of a particular kind during such non-commercial use.
Remedies for fraudulent claims by policyholders: consumer and non-consumer contracts
Previously, in the event of fraud, an insured party would forfeit the whole claim and insurers could also avoid the whole contract. Part 4 of the Insurance Act now sets out a clear statement of insurers’ remedies in the event of fraudulent claims brought by policyholders. Insurers:
- will not be liable to pay the fraudulent claim;
- may recover any sums paid to the insured in respect of the fraudulent claim; and
- may, by notice, treat the policy as terminated with effect from the fraudulent act and retain all premiums paid. Previous valid claims are unaffected.
The same rights apply in respect of fraudulent claims made by persons under group insurance policies, although only in respect of those persons who committed fraudulent acts and not the other innocent members of the group policy. Insurers will need to serve a notice on the fraudulent group member and the person who took out the policy on behalf of the group. Sums paid in respect of the claim may be recovered from the person who committed the fraudulent act, or the person who took out the policy on behalf of the group if they had not passed sums on to the fraudulent person.
Duty of utmost good faith: consumer and non-consumer contracts
Previously, either party could avoid the insurance contract if the other failed to act in accordance with ‘utmost good faith’. Significantly, Part 5 of the Insurance Act has now removed avoidance of contract as a remedy for breach of this duty, and abolished any parts of legislation prescribing this as a remedy. Insurance contracts will still be based on utmost good faith, and clauses and obligations will be interpreted in a way that favours compliance with this duty.
Contracting out of the Insurance Act: consumer and non-consumer contracts
Finally, it is important to note that Part 5 of the Act prevents an insurer from contracting out of its provisions with the effect of placing an insured party in a worse position than they would have been in under the provisions of the Act. Parties to non-consumer insurance contracts can agree less favourable terms than those in the Act, provided that the alternative provisions are clear and unambiguous and sufficient steps are taken to draw them to the intention of the insured party of its agent before the contract is concluded.
Parties to both consumer and non-consumer contracts cannot contract out of the new prohibition on ‘basis of contract’ clauses.
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With Motor Premiums up by 8% in Q4 of 2022 (ABI, Feb 2023) we’ve got the information you need to reduce your insurance premiums. The worst thing you can do is to let your car insurance policy renew automatically, shopping around is one of the best ways to get a cheaper deal on your car insurance. We always recommend taking out a fully comprehensive car insurance policy to protect yourself, your car and any third parties involved. Here are some tips to drive the cost down even further: Search For Your Quote Early The closer you get to the day you want to begin your insurance policy, the more expensive the insurance policy will be. The cheapest time to search for your insurance policy is 25 days before your renewal, this is the cheapest time to ‘lock in’ your insurance quotation price. It’s best to diary this in your personal calendar 30 days before your renewal to give you enough time. Accurately Estimate The Number Of Miles You Drive Each Year We’ve found most people don’t accurately input the number of miles they’re driving each year and often over estimate them. If you’ve owned your car for more than 1 MOT cycle you can use this government tool to check your recorded mileage at each MOT and get an estimate of how much you drive annually . If you’re a low mileage driver, consider pay-as-you-go insurance. Pay For Your Insurance Annually Paying monthly for your insurance almost always works out more expensive as you’re taking a loan, with interest added. This makes a lump sum payment always cheaper. If you can’t afford to pay for the insurance in one lump sum, a good idea is to hunt down a 0% interest credit card . Make sure you keep to the credit cards terms, that’s usually making the minimum monthly repayment and paying off the balance before the interest free period ends. Increase Your Voluntary Excess Excess is the payment you make towards an insurance claim when repairing or replacing your vehicle. Raising your excess will reduce the price of your insurance. Just be sure you can afford the excess and you. Build Your No Claims Discount/Bonus Building your No Claims Discount (sometimes called No Claims Bonus) will help you get a cheaper car insurance policy as insurers reward motorists who are claim-free with a discount. It’s worth getting a certificate from your insurer at the end of each term to keep a record of this yourself. Choose Your Add-On’s Carefully And Sometimes Separately Vehicle insurance often doesn’t come with a courtesy car, GAP insurance, breakdown or legal assist. See if you need these add-on’s for your circumstances and choose wisely. You can get the add-ons for your insurance policy separately which can work out cheaper at times. There are multiple insurers and brokers that offer them separately. Park Your Car With Care Insurers deem parking in a garage, a driveway or anywhere off the road at night time safer than parking on the street as there is less chance your vehicle will be stolen or vandalised. Avoid Modifications Modifying your vehicle can mean a big price increase for your car insurance as it can make it more attractive to thieves, the modified parts are also more expensive to replace than the original parts of your car. Choose Your Job Title Accurately The way you describe your job can affect your vehicle insurance premium. A ‘hairdresser’ and a ‘barber’ can be quoted different premiums. Be honest about your job or you can risk invalidating your insurance policy. Multi-Car Policy If you‘ve got more than one vehicle, considering adding them all onto one policy as many insurance providers will offer a discount Now that you’ve got all the tips to keep your insurance premium low you know what to do when shopping online for car insurance. One thing to keep in mind is to be honest or it invalidates your insurance policy; this includes selecting the correct main driver, the usage of the vehicle (commuting and/or business use)
Planning ahead for cold conditions There are a number of protective measures you can consider taking to help prepare your commercial property for the cold conditions, including: Have a professional plumber check your plumbing joints for leaks. Remember those which are hidden and keep an eye out for green discolouration on copper pipes – this could be a sign of a leak. Review your insulation to protect your pipes from freezing. Prevent your water supply stopcock from stiffening by testing it from time to time. Perform a comprehensive risk assessment to evaluate ice, flood and snow hazards, including large falling icicles, significant slippages of snow from sloping roofs or roof collapse from the weight of the snow. Develop your Business Continuity Plan (BCP) (Disaster Recovery Plan) to cater for winter-specific conditions. Check manufacturing processes and materials to see if they’re affected by lower temperatures. Check roofs, gutters and drains to make sure they’re in good working order. Don’t forget to follow the duties and precautions under the Work at Height Regulations even if the person carrying out the work is not your employee. Review any fire risk assessment; if you need to provide any additional or different heating, remember to inform your insurance intermediary. For the external parts of your property, consider: Implement slip-related safety measures, such as gritting or diversion to less slippery walkways. Don’t forget that hard floors in entrance areas can become very slippery during wet or snowy weather. Assess the exterior lighting around your premises; with less hours of daylight, it may be harder for people visiting you to see icy and other slippery areas. Leaving your property vacant If you’re going to leave your property vacant for an extended period of time over the winter months, it’s important to consider the following: Don’t lower the heating too much. Leave it on low at around 15°C, to prevent existing water from freezing. Alternatively, you could drain the plumbing system entirely. If you’re considering doing this, you should seek professional advice. Make sure that pipes in unheated areas, such as lofts and, where accessible, under floor spaces are insulated with high quality lagging. Insulate water tanks in lofts and unheated spaces or open-sided buildings. Have someone keep an eye on your property, who’ll be able to contact you should they find a leak. Hire a professional to check if you have a condensing type central heating boiler, which has an external condensate discharge pipe, ask them to check that the pipe is the correct minimum diameter for the model of boiler involved and that the pipe is suitably lagged. Freezing water in an unlagged external pipe could cause your boiler to stop working. In areas where extremely low temperatures can occur, your heating engineer may recommend that the pipe is also electrically trace heated. Watch out for frozen pipes Tell-tale signs of a frozen pipe include no water coming from the tap, frost or ice on the outside of the pipe and if the pipe appears to be bulging. However, a frozen pipe doesn’t necessarily mean a disaster, if you act quickly enough. If you discover a water pipe which is frozen but has not burst, take the following steps to prevent it from bursting and protect your possessions: Turn off the stopcock. Remove any furniture or equipment in the area which may get damaged by any leaking or escaping water, where safe and practical to do so. Open the tap closest to the area and begin gently warming the pipe with a hairdryer or hot water bottle, starting from the end closest to the tap and working away from the faucet. Don’t forget any outdoor taps – it may be worth insulating these to prevent water from freezing inside the cavity wall and causing an escape of water. Although pipes are inevitably damaged when they freeze, it’s only possible to see bursts when the pipe begins to thaw. If it is apparent that a pipe in your property has burst, you should: Turn off the stopcock and drain the system by opening taps in baths and sinks. Switch off your heating and, if in doubt, your electricity at the mains. Contact your plumber immediately. If possible, once the leak has been fixed, make sure you air the affected parts of the property by leaving windows and doors open. This content is by no means exhaustive and is for guidance purposes only. It’s not intended to amount to advice on which reliance should be placed. For requirements specific to your business, please seek professional advice.
Driving in the dark Driving is significantly different in the dark and, without the correct safety precautions, potentially hazardous. At night, vision is reduced, making it much harder to see signs and other road users, such as pedestrians and cyclists. There are several things you can do to ensure your visibility isn’t compromised, including: Checking your lights to make sure all lights in and outside your vehicle are fully functioning. Driving slower than usual, as poor visibility means you may not see another road user or a hazard until the last few seconds. Driving at a slower speed not only means you have more time to see what’s in front of you but also more time to react. Taking regular breaks in night conditions, as the risk of falling asleep at the wheel is also greater. If driving at night is unavoidable, make sure you take regular, planned breaks and if you feel tired, stop and find somewhere safe to rest. Prepare ahead There’s no better time for a service than in the approach to winter. If a service isn’t possible, you can carry out your own tests. This should include: Routinely checking the concentration of antifreeze in the coolant system and bringing it back to the correct winter level. Making sure the windscreen and wiper blades are in working order and that the screen wash is topped up. Checking all lights are working and replacing any faulty bulbs immediately. Checking the car battery and replacing it at the first sign of trouble. Checking that the brakes are working well. Checking the tyres for any damage to the tyre walls such as cuts, cracks or bulges. These should be dealt with immediately as they could lead to slow punctures or blow-outs at high speeds. You should have a minimum tread depth of 3mm and anything less than 2mm remaining on a tyre should be replaced immediately. Never under-inflate your tyres – it’s a myth that a softer tyre means better grip. It may be worth installing winter/all season tyres. These are tyres that are specifically designed to give increased grip in winter conditions. In instances of particularly extreme winter weather, snow chains are also worth consideration. Please note that any tyre enhancements must be fitted to the manufacturer’s standard. Putting together an emergency kit It’s a good idea to put together a winter emergency kit, in case of breakdown in the winter months. You can have peace of mind knowing that you’re prepared for the worst by stocking your vehicles with the following items: Ice scraper and de-icer spray Powerful torch with spare batteries Reflective triangle First aid kit Warm clothing, wellington or other boots, blankets and/or a sleeping bag Insurance and broker documents, including any contact information for emergency claim hotlines Bottled water and non-perishable foods Jump leads Snow shovel Sat nav and maps Fully charged mobile phone(s), charger lead and auxiliary battery. Before you set off When setting off for a journey in severe conditions, make sure you: Decide if the journey can be postponed. If you are an employer then you must follow the legal duties relating to employee safety. You should consider the age and experience of your employees when it comes to making decisions about driving in potentially severe weather conditions, particularly if they will be alone. Check weather forecast and travel bulletins before leaving. Give yourself extra time for your journey and stick to main roads, where possible. Have plenty of fuel in the vehicle. In severe weather there may be less filling stations open for business. Always let someone know where you are going and when you expect to arrive. Use gentle manoeuvres, especially when braking. Be cautious with all road surfaces, even if they have been treated. Remember that stopping distances will be considerably longer in wet and icy conditions. Always try to pull away in second gear and select a higher gear such as third or fourth for travelling downhill. In the event of skidding, depress the clutch, steer into the skid and avoid the temptation to brake forcefully. Remember black ice can appear to just be a wet patch, so proceed with caution.