Following a second reading in the House of Lords in the summer, it looks like the Insurance Bill is on track to be passed by the end of March next year and will come into effect in the autumn of 2016. Some time off I know, but if the Bill becomes law then the insurance market is going to have to put in a lot of work to be ready for the consequences.
So what does this all mean for those of you who help source commercial insurance for your clients? This Bill aims to update 100 year-old rules governing contracts between insurers and businesses. While it contains a number of different aspects, one key area tackles disclosure and misrepresentation.
The Consumer Insurance Act, which came into force in April last year, shifted the onus of responsibility from consumers on to insurers in arranging insurance for their personal use such as buildings and contents cover for their home. It is now down to the insurer to ask specific questions to obtain relevant information about the customer’s circumstances rather than relying on the customer to provide the necessary detail. The customer now has legal protection if they unknowingly give incorrect or incomplete information to their insurer. The insurer cannot decline a claim on the grounds of non-disclosure unless they can prove the customer carelessly or deliberately lied or misrepresented their circumstances.
If the Bill is passed, a business customer’s existing duty to disclose to insurers all circumstances material to their risk is going to be replaced by a new duty: the duty of fair presentation. The rules about what buyers of commercial insurance such as cover for their shop or business premises need to disclose to enable insurers to assess the risk – and who is responsible for making that disclosure – will change.
Under the new Bill, the customer must disclose every material circumstance which it knows or ought to know. Alternatively they must disclose sufficient information “to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances”. It’s not as straightforward as the changes made under the Consumer Insurance Act and, as ever, the devil will be in the detail. This may be sounding alarm bells to those of you who do help source commercial insurance cover for your clients.
However if you refer your clients to a general insurance provider like The Source, in reality the burden of ensuring your clients disclose the correct information will fall on the shoulders of the commercial broking experts that we partner with. You will simply continue to forward on your client’s details as you already do and it will continue to be up to our team and our partners to do the leg work. That includes taking care of compliance and administration. You’ll continue to receive your commission year after year as long as the policy is live – even if you retire or choose to leave the industry.
And if you don’t currently refer this type of business on, come the autumn of 2016 it might be a good time to start?