Today, Wednesday 12th August, is the day when the next renewal of the policy just incepted / renewed is going to be subject to the new Insurance Act. Every party and participant in the placement process needs to be aware of the new obligations, the new remedies and the need to consider the wording of policies. Also, every participant in the process needs to be asking whether and how he will approach those new obligations. Whereas the Act seeks to re-balance the risk between policy holder and insurer, the policy holder needs to be aware of his own obligations. Similarly, brokers can also expect to be asked about (and indeed should be advising on) the new Act, the responses of insurers and the products being offered.
The questions to be considered include: what does a “reasonably clear and accessible” proposal look like? What is a “reasonable search” for information? Who are the “senior management” of the insured? How widely does an insured have to send its reasonable search? Will that vary depending on the nature of the risk being placed? What is “sufficient information” to put the prudent insurer on notice that it needs to ask the policyholder questions? Are information barriers effective? Are the rules surounding confidentiality different for brokers and insurers? Are warranties the best risk mitigation solution? Should we contract out? What are we contracting in to? Are the rules different for SMEs? How will the FOS respond to the Act when dealing with complaints by a sole trader or microbusiness? Is the cost of contracting out worth it? What are our competitors doing? What should we be doing? Have we left it too late?
We have been closely involved in the change to the law, starting with the consultation phases, then the Parliamentary process (BLM was the only law firm to respond to the House of Lords request for evidence) and now clients are seeking our views on many of the above questions. Our perspective is that the larger the organisation, the greater its awareness of the questions, and in having addressed the questions the further down the track the organisation is at dealing with the necessary change. BIBA launched its Introductory Guide at its Conference and the Lloyd’s Market Association published its Practical Guide shortly afterwards. Airmic have a September Roundtable planned with further work to follow to develop common understandings of the terminology and approaches to be adopted.
It is perhaps inevitable that the larger organisations will be ahead of the game. They have more resources and, of course, greater challenges. The change in the law reflects a more complex world where the commercial relationship can no longer be characterised, as it was in 1906, between an individual who was an underwriter and a policyholder that was not the large organisation that exists today. Today these large organisations – whether insurer, insured or advising broker – need more time to alter and adjust processes. The fundamental and almost unique nature of an insurance contract where knowledge of risk has to be shared between the contracting parties means that “who knows what” and the underlying systems are essential components and will become more important as disputes arise and the Courts look for the evidence underpinning the assertions about knowledge and material misrepresentation.
However, the same unique nature of an insurance contract that requires parties to exchange information should encourage industry stakeholders to try to narrow some of those new areas of ambiguity. The costs associated with different presentations of scope and depth being collated and supplied, requested and rejected as either insufficiently or over detailed, will not assist any underwriter, broker or insured in today’s pressured commercial environment, where the objective is to match risk with risk appetite at the right price. Hence, as the renewal of 12th August 2015 is placed it is time for everyone in the process to pause for thought and pick up the phone, whether that is the broker to client or underwriter (or vice versa), and suggest a coffee, because “We need to talk……..”