UK insurance act 2015 key changes
For over 100 years, the insurance world is more or less dictated by the Marine Insurance Act 1906. The act actually formed the bases almost all insurance contract. The principles and practices of the insurance industry are largely indebted to the Act for a century.
With the passage of time, the business law, rules, practices and their insurance requirement has changed a lot. The changing needs of the time are addressed by adopting the law with the requirement. Of late the adaptation process has been taken place in the United Kingdom.
The British parliament has the Insurance Bill suggested by the Law Commission of the United Kingdom in July 2014. The Bill received Royal Assent on 12th February 2015 and with the royal assent it has been recognized as the Insurance Act 2015 (the “Act”) which is be beingtered into force on 12th August 2016.
It is said that the Act will make a revolutionary change in the law of insurance contract.
Here are key changes brought by the Insurance Act 2015:
- Warranties become “suspensive conditions”
Under the previous regime, any breach of warranty enables insurers to discharge liability from that point onward while the section 10 of the act has suspended the fulfilment of the obligation.
2.2. Basis of Contract (BoC) clauses are prohibited.
Earlier this clause converted all pre-contractual information into warranties, which was in favour of insurers. Under IA 2015, the liability of insurers will be suspended, rather than discharged if there is a breach of warranty; so, insurers remain liable for valid claims after remedying a breach.
- Non-compliance of a ‘loss mitigation’ policy term that has no bearing on the claim
This section provides that non-compliance of other terms/warranties, which are not closely related to any loss event, will not impact any loss settlement by the insurers.
- Duty of disclosure, both before a contract incepts and when amended;
Section 18 of the MIA 1906 imposes on the insured the duty of disclosure of every material circumstance, which is known to the assured while the IA 2015 has redefined the ‘Duty of disclosure’ to be ‘Duty of fair presentation’ requiring policyholder to make reasonable search of information to disclose to insurers defining what a policyholder knows or ought to know.
Further; it requires the insurers to ask questions as to the risks presented. The Act has provision for the proportionate remedy in respect of any material non-disclosure. No direct avoidance of the policy is allowed for the insurers. Thus, the Act brings certainty for the customers about the working of the insurance policy during claims settlement.
- Fraudulent claims by insureds
A claim tainted by fraud is forfeited by the policyholder. If a member of a group makes fraud, he or she will lose the rights of damage or compensation from insurers and the rest of the members of the group will not be affected by the fraud of that particular member.
- Utmost Good faith
Section 17 of the MIA 1906 presents the general duty to observe the utmost good faith in disclosing material facts to the insurer while the IA 2015 has removed the provision of Utmost good faith. However; the principle of utmost good faith was from the case of Carter v Boehm (1746), developed under the common law and codified in section 17 of the Marine Insurance Act 1906.
Under the new regime, there is the proportionate remedy in case of under-declaration affecting only a single element of the property details. However; common law system still requires disclosure of material information be in the utmost good faith.
- Amendments to the Third Parties (Rights Against Insurers) Act 2010
The IA 2015 gives the power to change the meaning of “relevant person”. It enables the Secretary of State to make regulations adding or removing circumstances in which a person is a “relevant person” for the purposes of the 2010 Act. Now underwriters are to be heedful of the provisions of ‘Third Party Rights Act 2010’, which are backed up by the IA 2015.
- Contracting out
An insurer is not allowed to use any term that may put the consumers in the worse position than the position provided under the IA 2015. In respect of non-consumer contract, there is the freedom to agree to alternative regimes if insurers meet transparency requirements.
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