Insurance Law Reform set for April 2016

It is hoped the Insurance Bill, which sets out reforms to the legal framework for commercial insurance, will go through Parliament early next year and become law in April 2016. Airmic has strongly welcomed the legislation.

The Insurance Bill seeks to replace the Marine Insurance Act, the century-old measure that provides the framework for all commercial insurance purchased in the UK. The association regards the current position as out-of-date and out of touch with modern business and believes it potentially places UK industry at a disadvantage internationally. It has been urging reform for several years.

The legislation tackles the controversial issue of disclosure rules, which Airmic has criticised as ‘draconian’ because of the scope they give insurers to avoid paying apparently legitimate claims. The law, as it stands, requires the buyer to provide all ‘material’ information, even when the underwriter has not requested it. Failure to do so can allow the insurer to turn down a claim, regardless of whether the missing information would have affected the terms of the policy. Airmic has long argued that insurance purchased in good faith should be honoured.

Two significant changes were made to the legislation before being presented to Parliament, which have been portrayed in some publications as watering down the measure. The introduction of a mechanism for damages for unacceptably late payments of valid claims has been left out of the Insurance Bill, together with protections for policy holders against the inappropriate use of warranty breaches to avoid policies. These changes follow pressure from some sections of the London insurance market.

Whilst Airmic would have preferred them to have remained, it does not regard them as being of central importance. Deliberate late payment by insurers is not, in practice, seen as a serious problem for members, whilst the problems potentially caused by warranties can be addressed through contract wordings.  

John Hurrell

“From the perspective of our members, the two most critical elements have been preserved intact. These are proportionate remedies for innocent non-disclosure and the elimination of basis clauses,” said chief executive John Hurrell. “Member surveys and anecdotal evidence show that these are two of the greatest causes of claims problems being faced by our membership group. The new legislation provides much needed clarity, which will be good for business and will help to maintain confidence in the London and UK insurance market.”

Assuming the Bill becomes law as planned; Airmic’s recently published Insurance Efficacy Guide will have to be updated in places, especially the section on disclosure. However, the document will remain a valuable description of best practice in the purchase of business insurance.

The reform follows years of a careful work by the Law Commission led by Commissioner David Hertzell.