We review how the new Act is working in practice, potentially offering the quick and savvy motor insurer significant savings when third party claimants come calling.
Section 9 Deregulation Act 2015 came into force on 14 June 2015, radically overhauling the effect of s.147 Road Traffic Act 1988 (RTA 1988). The changes apply to a policy which is cancelled on or after 30 June 2015.
- Insurers should ensure their internal processes allow them quickly to identify misrepresentations and/or non-disclosures by potential policyholders. This is likely to be part of most insurers’ counter fraud screening process.
- Insurers must be quick (when they are certain of the facts) to send a voidancy/explanatory letter to the would-be insured and cancel the policy on the Motor Insurance Database (MID).
- The new legislation makes it far easier to manage policies of motor insurance with higher risk and younger groups of policyholders where risk and premiums are being assessed ‘on the fly’ with new telematics-inspired policy lines. Could the telematics data itself be utilised to identify misrepresentation or non-disclosure?
- There will still be occasions when it makes good sense to bring statutory declaration proceedings.
Under s.147 RTA 1988, insurers had the option to serve a voidancy letter then void the policy on the grounds of material misrepresentation or non-disclosure of a material fact. They would do this where they would not have insured the policyholder (or at least, not for the same premium) if they had known about the misrepresentation or non-disclosure.
However, difficulties potentially arose if a road traffic accident (RTA) occurred after inception of the policy and after the misrepresentation or non-disclosure came to light. The insurer had to move quickly to send the voidancy letter and physically recover the certificate before an RTA if it was to avoid a statutory liability to meet a subsequent civil claim. If it failed in that, the insurer would have had to bring statutory declaration proceedings against its insured, on the basis that the policy was void from the start.
- Section 9 Deregulation Act 2015 removes the need for insurers to deliver a certificate of motor insurance to the would-be policyholder for the policy to be legally effective.
- The first point of reference is now the MID maintained by the Motor Insurers’ Bureau (MIB). The MID is the UK repository of details of all motor insurance policies.
- Perhaps most radically, under s.147 RTA 1988 (as amended) policyholders no longer have to surrender a certificate back to the motor insurer if their policy is cancelled in mid-term. It is no longer a criminal offence to fail to return the certificate.
- Critically, an insurer no longer has to retrieve the certificate physically for the policy of insurance to be cancelled. The certificate is cancelled when it is marked as such on the MID.
Even now, if an insurer learns of misrepresentation or non-disclosure after an RTA, it may still want to bring statutory declaration proceedings. As before, to avoid statutory liability for any civil judgment, statutory declaration proceedings must be brought within three months of issue of the relevant civil proceedings.
Although it has not been properly tested yet, presumably if an insurer can show that a court has declared a policy void from the start, the insurer can (and must) then cancel the policy (as from the date of inception) on the MID. If it does not do this, it may have to incur further costs later on.
Why would a motor insurer seek to avoid a policy of motor insurance – when they will probably end up as Article 75 insurer under MIB provisions? The usual reason insurers bring statutory declaration proceedings is an economic one. If a declaration is obtained in court, the insurer no longer bears a statutory liability and is, at most, an Article 75 insurer. As such, the insurer can (with court declaration to hand) avoid subrogated third party claims.
Feedback from insurers to date is that the need to obtain statutory declarations continues. However, so far, the system of notifying etc. on the MID seems to work well. In addition, there have been no errors on the MID resulting in insurers remaining notional RTA insurer even though they notified cancellation before any RTA giving rise to liability.
Most insurer clients believe that as efficiencies in use of the MID improve in this context, the number of cases requiring statutory declarations ‘after the event’ of an RTA should steadily decline, but not disappear altogether.