From August 2016 the insurance industry will see major changes to the obligation on parties to provide their insurers with relevant information.
Since 2013 the rules for ‘’consumers’’ ( an individual who enters into a contract wholly for the purposes unrelated to the individual’s trade, business or profession) have moved away from the traditional ‘’Duty to disclose’’ to the ‘’Duty of fair presentation.’’ On the 12th August 2016 ‘’Non-Consumers’’ (business related insurance) will follow suit.
The new legislation is designed to be less onerous on the customer and to place more pressure on the insurer to take more of a lead in the information gathering process. It is hoped that the new guidelines will stop insurers taking a wholly passive approach and then looking to deny cover on the grounds of non-disclosure.
Overview of the new legislation:
- Move from duty to disclose to duty of fair presentation
- Commercial Policyholders should disclose every material circumstance that they know or ought to know, if they don’t do this they should give their insurers information that is sufficient to put the insurer on notice that further enquiries may be necessary.
- It is unreasonable for an insurer to assume that the individual purchasing the insurance has every single material fact to hand and compels an insurer to dig deeper should they need further information.
- The presentation of the facts to the insurer should give a clear indication of the risk to the Underwriters-this is to prevent submissions that are too brief or to prevent data dumping (where Policyholders bombard the insurer with vast amounts of data that is not relevant).
If there is a breach of disclosure:
Non-deliberate breach or non-reckless breach:
- Claim refused on basis information was available – All premium must be refunded from inception and the policy will be voided.
- Increase in premium – The insurer could reduce the claim payout by the amount that was under paid at inception for example. If only half the correct premium was paid at inception the insurer may only pay half the claim.
- Terms changed – An insurer may choose to alter the cover or excesses of a policy and settle the claim under those new terms.
- The Insurer can void the policy and keep all of the premium paid but the Insurer must prove that the policy was deliberately misrepresented.
Overall, the new legislation shares the responsibility of the disclosure between Insurer and Insured and falls in line with the Financial conduct authorities’ big push on treating customers fairly. August 2016 will mean that brokers will play are more important role than ever condensing the information from the insured, presenting it in a way that is easy for an Insurer to provide suitable cover with a premium that is reflective of the risk.