On the day that BIBA and Mactavish launch a dedicated guide to the Insurance Act, calling for the insurance industry to “embrace the underlying objective of fairness embedded in the Insurance Act”, it seems like an opportune time to remind our blog subscribers of the key attributes at the heart of the Act.
Insurance is a great product and should be treated by the policyholder as contingent capital: available at the point of crisis, with expertise and resource immediately to hand to deal with the crisis. It is cheap too – compare it with the cost of arranging equivalent funding by way of banking facilities. Yet it is undervalued – and noticed only by the Board when it is not available. Its critical importance in the very hour of need is not recognised and this results in a lack of attention to the detail and the issues that arise are inadequate cover (underinsurance) or no cover at all because the “wrong” policy has been purchased or because the detail of the contract has not been complied with.
The Insurance Act 2015 brings the law up to date, modernising it to reflect modern business practices and needs. It re-balances the insurance contract, previously favourable to insurers, with a more equitable “deal”. But that “deal” specifically requires the input of “senior managers” – a definition potentially wider than the Board – and has an underlying professionalism agenda which will have medium and long term implications for everyone involved in placing insurance : policyholders, brokers and insurers. The Act states that the insurer will be expected to have knowledge about the class of business that he is underwriting: no naïve underwriting following the biggest returns written “blind”. The senior management too have obligations and should know the contents of the proposal form – too often, surveys confirm that the policyholder has not seen the proposal put to the underwriter. And of course the underwriter stands, perhaps uneasily in the middle, adviser to the policyholder and doing his best on behalf of the inattentive client.
In the short term the new law will face tests – some of the law is evolutionary and some is wholly new. Present practice has evolved over many years based on a law now 100 years old. Brokers and underwriters should consider their processes and practice and whether it still fits with the new law. Some changes are subtle, some less so and as we have said some aspects of the law are brand new. A failure to adapt to these changes will result in a dissatisfied customer or policyholder when the new law is applied and no doubt a claim against the professional adviser when the policyholder does not recover his claim in full or at all.
In the medium term, as all parties learn about the new law and from the cases and claims that arise there will be a better, more professional service provided to the end user – a more accurate description of risk better matching the risk appetite of the underwriter more accurately priced – not necessarily cheaper but the right price for the right cover. (In theory!)
Written by Terry Renouf, partner, BLM