Airmic members provide overwhelming backing for insurance law change

Last month’s survey of members has found overwhelming support among risk managers for the strong position taken by Airmic on the need to modernise insurance law. The findings, which will influence the association’s response to the current Law Commission consultation on the subject, show an overwhelming desire for change.

Ninety six percent of those members who took part supported reform of the Marine Insurance Act – the 100-year-old measure that still forms the basis of the legal framework for commercial insurance. Only one respondent dissented.

Ninety five percent agreed that the concept of material circumstance and knowledge should be clarified in legislation. Currently a commercial policy can be voided if the buyer has failed to disclose material information, but the law does not define what that term means.

The same proportion, 95%, also felt that an insurer who fails to give sufficient care to asking the right questions should not be allowed to use non-disclosure as a reason for not paying a claim.

Ninety four percent of members agreed that, to obtain a remedy for non-disclosure or misrepresentation, the insurer should demonstrate either that the information would have affected the terms of the policy or that cover would have been declined.

The survey does show that risk managers recognise their responsibilities. A majority agreed that a business policyholder “should disclose every material circumstance that it knows or ought to know”. Some respondents, however, felt that these concepts needed to be defined first.

More than three quarters agreed that they had a duty to “disclose information that would have been discovered by reasonable enquiries proportionate to the type of insurance and to the size, nature and complexity of the business.”

The findings represent a powerful endorsement of Airmic’s position that the current legal framework is draconian and weighted against the buyer. The association has for several years expressed the view that the Marine Insurance Act is out of date, in particular because it puts the onus on risk managers to anticipate any question that the underwriter might have asked. Failure to do so can result in a claim being voided, even where the original insurance proposal has been completed accurately and in good faith.

Airmic’s Insurance Steering Group will be meeting in September to agree a formal submission to the Law Commission, but is now certain to back the general direction of their proposed reforms. These include the principle that innocent non-disclosure should not be grounds for an insurer to avoid a claim. The response from the insurance industry has been mainly but by no means universally supportive.

“The survey asked a lot of sometimes technical questions, reflecting the importance of the subject, and we are very grateful to those members who helped us by taking part,” said technical director Paul Hopkin. “The level of support for Airmic’s position gives added weight to our representations.”

This is the final consultation by the Law Commission, which plans to draw up draft legislation, which could potentially go before Parliament next year.

Paul Hopkin