The Insurance Act, which affects all new contracts from August 12 onwards, introduces a more policyholder-friendly regime. Billed as good news for business, the Act addresses the imbalance in rights and remedies, currently in favour of insurers, and provides enhanced protection for policyholders who all too often are tripped up by the onerous obligations presently found in commercial policies.
However, according to Garbhan Shanks, partner and head of insurance and reinsurance at Michelmores, businesses must keep their eye on the ball if they are to benefit.
Shanks says the Insurance Act fundamentally changes the way insurance is underwritten and corporate policyholders need to be fully aware of both its implications, and their duties, otherwise they run the risk of not having policies in place which will properly respond to protect their business and employees.
‘A fair criticism of many boards of directors is that they do not tend to engage much with the business’ insurance programmes, unless and until of course something goes wrong and there is a problem with the insurance responding for the company, or indeed themselves,’ Shanks says.
Boards should be currently overseeing that the correct systems and controls are implemented internally so as to collate the necessary disclosure information for insurers, he adds. If they do not, and a substantial loss occurs to the business where insurance cover is invalided or limited due to a failure to comply with the new regime, the spotlight may turn on directors.
Be prepared for the Insurance Act
‘Some businesses are still completely in the dark, whereas insurers are very well-prepared for the introduction of the Act. It is in their interests to have claims fail and businesses need to be careful not to trip themselves up by failing to comply with the new requirements,’ Shanks adds.
Under the Act, businesses will be subject to new more onerous disclosure obligations and will have to make a ‘fair presentation of the risk’ to an insurer before entering into a policy which requires them to either disclose every material risk which they know or ought to know; this will now require businesses to undertake a ‘reasonable search’ for information both inside and potentially outside its organisation. Failure to do so could result in claims failing and significant financial risk.
Shanks says, ‘The best thing is to open a dialogue and engage with insurers now to seek commitments from them as to what information and searches will be satisfactory from their perspective; that will hopefully bind them in to an agreed process and reduce the risk of any later arguments that the policyholder failed to give a ’fair presentation’.’
Further reading on insurance