The Insurance Act 2015 comes into force on 12 August 2016 – IA day – and will apply to all policies that incept or are renewed from that date. With only a year to go until the Act takes effect, we set out some key issues that Re/Insurers and Insurers should be considering now.
Insurers should be alert to the risks of current delegated underwriting authorities that overlap with the Act taking effect. For example, if a binding authority is issued for a period of one year commencing on any day after 12 August 2015 any risks bound by that coverholder from 12 August 2016 onwards need to be compliant with the Act.
Insurers need to ensure its coverholders are aware of the changes and that they have robust processes and controls in place to ensure they are binding risks that incept after 12 August 2016 in accordance with the Act.
Reinsurers need to be aware of the risks of entering into treaties where underlying cessions/reinsured business incepts after the Act takes effect.
Reinsurers are at risk of covering a broader range of liabilities then they may have accounted for when entering into the reinsurance contract. For example, reinsurance contracts underwritten from tomorrow under the current regime may in fact result in cover being provided for underlying policies to which the new Insurance Act will apply. Reinsurers therefore need to be wary of pricing contracts appropriately for underlying policies that incept after the Act takes effect. Reinsurers should ensure that not only they, but also their reinsureds, are prepared in good time ahead of the new regime taking effect.
Any current negotiations for contracts that may incept in 12 months’ time should take account of the effect of the Act on pre contractual negotiations, disclosure and representation issues.
In or Out?
Re/Insurers need to be considering now whether they will ‘contract in’ or ‘contract out’ of the rules and, in addition, whether this will be for all lines or open to negotiation on a risk-by-risk basis.
If a Re/Insurer intends to ‘contract out’, it needs to consider how this will be perceived by brokers and the market more generally.
If a Re/Insurer intends to ‘contract in’ (the default position), it should be reviewing its standard terms now to ensure compliance with the Act. Further, Re/Insurers need to review their processes and controls with regard to the ‘knowledge’ test (set out at s. 5 of the Act) and train underwriters now so they are confident they understand the changes introduced.