When UK insurance law was last substantially enacted in 1906, Japanese torpedo boats were attacking Russian ships in Manchuria, Mount Vesuvius had erupted and devastated Naples, and the British Empire census showed that Britain ruled a fifth of the world.
It says a great deal for the diligence and farsightedness of the Edwardian legislators who drafted the 1906 Act that it has remained for 110 years, and has survived two world wars and a regular procession of recessions.
However, the world does not stay still forever, and UK insurance law is about to undergo a major change with the implementation of the Insurance Act 2015, which comes into effect for insurance contracts entered into on or after 12 August 2016.
The measure contains significant changes to the legal framework of insurance contracts and it is of immediate importance to everyone involved in the insurance industry, which plays an essential part in the UK’s economic strength, managing assets of approximately £1.9 trillion. The main components of the new Act are: the duty of fair presentation of the risk; remedies for the breach of the duty of fair presentation of the risk; warranties and other terms; contracting out; the abolition of basis clauses.
On fair presentation, the previous duty to disclose all material information is replaced with an obligation to disclose “every material circumstance which the insured knows or ought to know”. Insured parties will now be expected to know what is known to senior management; what is known to individuals responsible for insurance, such as brokers.
Remedies for a breach of this duty – previously avoidance – are now to be proportionate, and will depend on whether or not the breach was deliberate or reckless.
The Act abolishes basis of contract clauses. These had the effect of converting pre-contractual information supplied to insurers into warranties without further discussion.
It is imperative that it should be brought to the attention of clients, but brokers should already be cognisant of clients’ growth plans and aspirations, what risks they potentially are facing, and the potential for expansion – or, if the economic circumstances dictate, retrenchment.
It is up to the broker to assist the client in providing all relevant information required under the Act, to understand it and work with the client to articulate it professionally to the insurance market place to make sure the risk is well represented and that the terms negotiated reflect the current business dynamic and structure without compromise to cover.
• Gordon Duncan is partner and head of corporate at Lockton Companies