The Insurance Act 2015 came into force on 12 August 2016. It is intended to make for a fairer balance of interests between the insured and the insurer.
Applying mainly to non-consumer policies where the insured is an organisation rather than an individual, it extends the requirements of the Consumer Insurance (Disclosure and Representations) Act 2012 even further by ordering that you have a duty of disclosure of material circumstances that you know, plus what you ought to know. At the very least you must declare enough information to let the insurers know they need to make their own enquiries.
What you Need to Know
This means you need to make efforts to find out all the possible risks that you need to disclose, and you should keep comprehensive records of this research, what it has revealed and where you acquired it. Often the knowledge you need doesn’t lie with just one person. Any member of your senior management team may be privy to it, also your risk managers and anyone else responsible for the company’s insurance, including external sources such as an insurance broker. To a lesser extent, this applies to individuals as well.
Disclosures must be clear, structured and relevant. You can’t just dump a load of documents on the insurers for them to sift through and find what is pertinent. Unless your presentation is indexed and signposted in a coherent structure, it will not be considered adequate. Nor should it be too brief, vague or ambiguous, as is pointed out in the Explanatory notes to the Act.
Permitted Penalties of Non-compliance
If you fail to find out and disclose what you should have found out through diligent research, insurers can penalise you in specific ways. If anything is proven to be deliberately misrepresented, the insurer can avoid the policy so that it is ineffective. It is unlikely that you will receive a refund on your premium.
If the misrepresentation is found not to be deliberate, and you can produce evidence that you tried to ascertain the facts that have since come to light, the insurer has options based on the situation as follows:
- If it can prove that the policy would not have been issued at all if the facts had been known at the time, it can avoid the policy and refuse the claims, but the premium must be repaid.
- If the risk would have been accepted and a policy written with different terms, the contract should continue as if those terms were included.
- If the premium would have been higher, claim settlements can be reduced by an appropriate proportion.
Complying with Warranties
Some insurance contracts depend on action that you agreed to undertake at the time they were written, such as changing or adding locks or alarms. The law regarding non-compliance on this has now changed so that insurers can no longer cancel the policy completely and avoid any claims, but only suspend the policy when the breach of the warranty is discovered until you fulfil the requirements. You will then still be insured under the same policy. It will, of course, be advisable to document proof of compliance with the warranty with relevant dates noted.
Wise small business owners will want to be confident that they have the right evidence in place regarding both their disclosures and their warranties. You can always turn to your local bookkeepers for help on these issues. They will be delighted to give you the benefit of their experience with helpful advice and support.