Insurance Act comes into force today

12 Aug 2016

Those of you that are avid readers of our RED blog will be all too familiar with this week’s Elvis themed posts. When we planned our Insurance Act campaign over two years ago, having responded to various Law Commission Consultations years before, we had only an inkling that the change and opportunities presented by the Act might be so momentous or of such significant timing. Also, having waited 110 years for reform, little did I know that the lyrics penned for ‘The King’ and first sung in 1968 would inspire some thoughts about the way the Act has been received, responded to and ultimately prepared for by so many of you.

Before we recap on this week’s posts setting out some areas of discussion and concerns about the Insurance Act, it’s important to stress that the work doesn’t stop here. Insurance Act claims will now start coming through. There will be disputes and litigation about the new law: this is inevitable and the nature of our legal system. Ultimately such disputes will give us greater clarity about a law that reflects market consensus. Additionally in applying best practice and the Law Commissions’ underlying professionalism agenda, the Insurance Act raises and levels the playing field for all market participants.

We will be monitoring and reporting on trends and keeping our RED blog and our Insurance Act Time for Change web pages up to date with all the latest developments. Notwithstanding that our Elvis themed blogs speak of concern and risks, we sign off this post with considerable optimism. The new law, designed and implemented in the 21st century, gives the insurance industry the opportunity to provide its customers with even better products. In a period of uncertainty and as Britain is in the process of redefining its position in world markets the Insurance Act could not be better timed.

As Elvis says time now for a little less conversation, a little more action.

A little less conversation...

Although Insurance Act “day” is formally today, it has been a reality for any policyholder or underwriter for some time: a placement is not (or should not be) conjured up overnight. The “fair presentation” (and of course the disclosure of every material fact under the “old regime”) should be the result of a careful consideration of assessment of risk before inception.

For large organisations with complex programmes that are placed through brokers in to the London Market the Insurance Act will have been a reality for some time. There is a wealth of notes and guidance available (including of course all of the BLM Time for Change materials ).

Yet, a persistent complaint that we hear is that there has not been enough dialogue between those placing and accepting risk and their advisors, despite the 18 months between Royal Assent and commencement.

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...a little more action(s)

Any new law does bring some uncertainty even where carefully drafted. The Law Commission was aware of those concerns and the Insurance Act 2015 deliberately uses terms that, although not “modern”, reflect particular terminology familiar to insurance practitioners and judges.

This has been done to avoid the uncertainty that change can bring. However there will be some litigation that will arise from the Act. One would certainly hope, with legislation that was carefully constructed by industry consultation, that those disputes will be around issues that are generally interpretative of the new areas of the law, and not parties taking points either because the law proves to be poorly drafted or, like Mount Everest, because it is there.

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All this aggravation ain’t satisfactioning me…

Many questions and concerns and much of the press coverage and other commentary has centred around the duty of fair presentation. Will this be the area of substantial dispute, as theory is applied to practice, and claims start to test “Insurance Act” policies that were written from 12 August 2016?

The question that should be addressed is whether it is this part of the Act that, although widely discussed, is more contentious than other areas. The answer, because lawyers always caveat, is that there will certainly be disputes.

The first area of concern is around the “threshold test” for the policyholder to provide “sufficient information” which puts the insurer on notice to raise questions. Although this does mirror “waiver” issues under the old law one can envisage that there will be disputes. Secondly, the duty of fair presentation does preclude “data dumping” with the wholly new requirement that a fair presentation must be in a “clear and accessible format”.

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A little more bite and a little less bark

The Insurance Act 2015 will apply to new policies or variations from today – the “Glorious 12th” of the hunting season.

I have considered in my earlier blogs this week (and indeed within many of the papers,FAQs in the Time for Change area of the BLM website) those areas of the new law which might be subject to challenge or dispute after 110 years of “old” law and practice.

We suggested that “fair presentation”, being more evolutionary than revolutionary, although widely discussed might be less difficult for the market than anticipated. Certainly some of the nuances will need judicial determination but there is some existing case law for guidance.

One of the areas that does not have a similar corpus of law is around the “proportionate remedies” that will be applied where there is a breach of the new duty of fair presentation. This is an area that is new – the remedy of avoidance continues to be available but is supplemented by the option to apply the terms that would have been in place had the policyholder complied with its duty of fair presentation or adjustment of the claim, to reflect an underpaid premium.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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For more information about any of our news releases, please contact:

Natalie King
 +44 20 7638 2811
+44 20 7920 0361
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Fi Khan
+44 161 236 2002
+44 161 838 6324
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Jo Murray
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