Chances are that if you’re reading Insurance Business UK then you will have heard of the Insurance Act, due to be enforced on 12 August. However, awareness and
understanding are two different things, and concern is growing that as the Act’s implementation looms many brokers may be underprepared.
“When I have discussions with prospective clients and raise the subject of the Insurance Act, across a range of spectrums there is a blank expression on their face,” said Gordon Duncan, partner and head of corporate at Lockton
, Scotland. “Or they may have heard about it, but they know very little detail – and that, to me, is quite concerning.
“It will create a different dynamic between the insurer, the client and the broker, and those parties involved need to take action now to apprise themselves of the altered circumstances.”
What it changes
The Insurance Act is designed to update the statutory framework that was outlined in the Marine Insurance Act of 1906 for the modern UK insurance market. Broadly, it will focus on six main areas of change to the existing law: the duty of fair presentation; new remedies for non-disclosure; warranties and other terms; fraudulent claims; contracting out and transparency requirements; and rectifying the deficiencies of the Third Parties (Rights Against Insurers) Act of 2010 to allow it to come into force in the near future.
“There are things in the Insurance Act which change how an insurance contract would have performed historically,” commented Nick Smith, UK Senior Manager - Product Strategy at Aviva
“If you take one example on warranty – imagine an insurer enforces on a customer that they need to set their alarm every day on their premises, and one day they forget to do it. Then on another day, when they have set the alarm, they have a theft. Under the old terms of the 1906 Act, an insurer could have avoided the claim completely because the customer hadn’t fulfilled the terms of the contract on one day, even though they set the alarm on the day of the theft. However, post-August that type of thing changes in that if a customer doesn’t do something then the insurer’s liability is suspended, but just for the period when they’re not carrying out that obligation.
“It’s far fairer, and I think explaining that to customers is part and parcel of the job we have as an industry.”
According to David Williams, technical director at AXA
Insurance, the impact of the Insurance Act is potentially massive, and it could help clean up the industry’s image.
“You can’t underestimate the impact that it’s going to have,” he said. “But it’s just the first stage. What usually happens with these things is you get some legislation and there are some blurry bits around the edges, some challenges in court, and I am concerned that we have years of legal precedent and we know precisely what things mean under the old regime – and there’s a danger now that all that starts again.
“The positive is that we know our industry doesn’t have the best reputation, and my view is we’ve done lots to change that. Unfortunately, there are still some players who don’t behave in the manner they should and they are the ones that get featured in the bad-news stories and get talked about in the pubs – the Insurance Act should stop people from behaving in that manner.”
What to do
So what, if anything, do brokers need to do in time for the change – will this mean a wholesale change to their day-to-day activities or will it be business as usual?
“From a broker’s perspective, yes, there’s some new terminology, some new phrases, and it’s important they talk to their customer about that,” Smith said. “But fundamentally, it’s just the framework that has changed. “You need time to update your processes and procedures, your documentation. I think in terms of customer engagement I would expect brokers have already been talking to customers about this, and those conversations need to continue.”
Williams added that “from an insurer perspective it’s the detail around warranties and contract rules, etc. For the broker, though, it’s about fair presentation of the risk. That’s what they need to understand, and they must stress the importance of that to their customer. Personally I’d get them to sign things off – that’s good practice.
“Yes, there are legal changes, but depending on what markets the brokers use, and if they’ve always behaved professionally, then it might mean no changes at all.”