Insurers will have to be much clearer in their terms and conditions and will no longer be able to essentially hide behind warranties that have nothing to do with an incident as an excuse not to pay a legitimate claim – for example, using the absence of an alarm to refuse to pay out in the event of a fire that originated elsewhere.
Fundamentally, two aspects of the changes are particularly significant. Firstly, at present the onus is on the policyholder to disclose any material fact that they know or ought to have known, however, the new act will simplify this to require the policyholder to be bound by a duty of fair presentation. In other words, placing them under no obligation to disclose information either not asked for or that which the insurer ought to have known. Secondly, non-disclosure is treated completely differently under the new act. At present an insurer can avoid a claim if the insured has failed to disclose any material fact, however, the new act places the emphasis firmly on the insurer to demonstrate that the non-disclosure was deliberate or reckless.
The common view is that the Act will enshrine what is generally thought of as best practice these days, but it will mean that more information has to be passed on to the customer. It has, however, got brokers and intermediaries worried. They fear that they will be held responsible for problems caused by a customer failing to fully disclose their risks and on the other side, blamed for any shortcoming in the insurer they recommend.
Some professional indemnity insurers seem to agree that brokers could well find themselves facing more legal wrangles as they feel that the Act does put greater onus on brokers. The ‘duty of fair presentation’, which codifies the principle that policyholders disclose all material facts that could be relevant to an insurer, does put pressure on brokers to know their clients inside out.
Intermediaries are going to need to make sure that their teams and their documents are prepared as they are going to have to be even more thorough, asking more detailed questions that ensure they can meet insurer requirements. This will undoubtedly mean a lot of management and staff training as well as rewriting of documents which is both costly and time consuming.
The Act should result in improvements and greater clarity to the purchase of insurance, but intermediaries must ensure that they get their houses in order over the next 12 months and are ready for the changes that it introduces next August.
