On 30 June 2015 we will see one of the most welcome and overdue pieces of legislation for motor insurers come into force; section 9 of the Deregulation Act 2015.
The Act affects all motor policies, whether personal or business, and simplifies the administrative arrangements when insurers seek to cancel a motor insurance policy. It does not affect, or deal with, an insurer’s right to apply to the courts to declare a motor policy void for non-disclosure or misrepresentation.
The effect of the section 9 amendments (to section 152 of the Road Traffic Act 1988) is to relieve policyholders of the obligation to surrender the certificate and to relieve insurers of the administrative burden of taking proceedings when the policyholder fails to surrender it.
What is the new procedure?
The changes brought about by section 9 of the 2015 Act mean that motor insurers wanting to cancel motor policies may, from 30 June 2015, simply cancel the insurance in accordance with the policy wording. However, the MIB’s current Memorandum and Articles of Association do not accommodate the new approach in the 2015 Act. It is therefore expected that the MIB membership will very soon vote to amend Articles 75(2)(2)(iv)(a) & (b) to reflect the changes to section 152(1)(c) of the 1988 Act. The changes to Article 75 are likely to require any cancellation to be uploaded to Motor Insurance Database (MID) as the final step before the insurer is off risk. Between cancellation and removal from MID the insurer will have an Article 75 liability.
When will cancellation be effective?
For policies cancelled on or after 30 June 2015 the cancellation will take effect in accordance with the policy wording. As set out above, and assuming Article 75 is amended as expected, the insurer will retain Article 75 liability until the cancellation is uploaded to MID.
If cancellation was effective before 30 June, the new Act will not apply.
What does cancellation achieve?
Insurers will have no policy liability after cancellation is uploaded to MID. Insurers will still be responsible for liabilities incurred up to the point of cancellation.
Are there any pitfalls?
Yes. See Article 75(2)(2)(iv). Before the cancellation ends any Article 75 liability, the policy must have been cancelled ‘strictly in accordance with the power of cancellation contained in the Member’s contract for the risk’. Particular care needs to be taken where an intermediary is cancelling on the insurer’s behalf. Failure to cancel properly will mean that the insurer retains an Article 75 liability until the cancellation has been corrected.
What does it mean for you?
Motor insurers will welcome the much simplified administrative procedure offered by this amendment to section 152(1)(c) of the Road Traffic Act 1988. To take full advantage of the new procedure insurers should scrutinise their standard policy wording to ensure that sufficient and clear powers exist to cancel. The cancellation procedure set out in the policy should be as straightforward as possible and any standard letters (or similar text/documents) may need to be updated.
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