The balance of power is changing. For the first time in over 100 years, businesses will be able to purchase insurance, free from so-called “draconian” disclosure and warranty rules, which have historically given insurance companies considerable scope to avoid paying claims.
The Insurance Act 2015 was passed on 12th February and will apply to all policies bought or renewed from 12 August 2016. There are new responsibilities on both sides. By familiarising yourself with the changes now, you could avoid getting caught out further down the line.
The get-out clauses
Under the current system, if an insurer discovers a ”material fact” after you make a claim; there are a number of reasons they could legitimately use to turn it down.
Example of breach of warranty
A warranty specified in your insurance is that your burglar alarm needs to be inspected every six months. You accidentally miss an inspection, realise later and get an inspection halfway through month seven. You get burgled in month eight and make a claim. Under the current rules, the insurer could refuse to pay out because you didn’t stick to your inspection schedule.
They could also refuse to pay out if there was a fire, just because the burglar alarm had not been inspected on schedule, regardless of the fact that there is no connection between the breach and the loss claimed.
The new Act seeks to turn such warranties into something called ‘suspensive conditions’ and as a result, insurance companies would not be able to deny a claim once the warranty had been complied with..
Fair presentation of risk
When buying insurance, it is your responsibility to provide your insurer with an accurate picture of any risks. This means you ensure that all people within your organisation also disclose any information that could affect a potential claim.
You suffer a minor theft or vandalism, but choose not to claim or notify your insurer because of the minor amount involved.
In the past, even if the material fact would not have changed the premium on your policy, the insurer could still refuse to pay the entire claim if you did not notify them when the renewal took place.
Under the Act, you now only have an obligation to make a fair presentation of the risk. A business would also have to disclose facts known to its senior management, after they have made reasonable enquiries, including any “blind eye” knowledge. The latter means that you had a suspicion that you might have suffered minor incidents, but deliberately failed to make enquiries to establish the facts.
Under the Act, the insurer can only avoid the claim as a whole if they can prove that the non-disclosure was deliberate or reckless. If the non-disclosure was innocent, or merely negligent, this will result in proportionate consequences. For example, if the insurer would have charged a greater premium, the claim would only be reduced by the same proportion.
The Act is now leans favourably towards the insured. However, there are still many grey areas and it is therefore always advisable to seek legal help when buying business insurance. For some advice on the best option for you, get in touch today.