Gathering and Assimilating Knowledge Within the Business - Senior Management
Following on from Shoosmiths' published Business Guide to the Insurance Act 2015, we will now examine in more detail, from a policyholder's perspective, what policyholder challenges are in the coming months.
The Duty - A Reminder
The Insurance Act 2015, places a duty on policyholders that they must disclose all material information known by the business, but in particular, senior management. The Act sets out a more structured framework for the information that a policyholder absolutely must provide to an insurance company before it enters into or renews a contract of insurance. As we noted in the Business Guide, even a variation or amendment to an existing insurance policy will trigger the duty of fair presentation.
In a nutshell, you need to understand what information needs to be disclosed, who within the business holds that information and how you are going to capture it.
Gathering and Assimilating Information to be Disclosed
There are certain individuals whose knowledge of the business for the purposes of disclosure and complying with the duty of fair presentation will be key. These include senior management, risk managers responsible for the company's insurance, both inside and outside the organisation, subsidiaries in a group of companies and, of course, your insurance brokers. This is not an exhaustive list as it is entirely possible that more specific information will be required by insurers depending on the nature of the business.
In practice, your broker will advise on your disclosure obligations and there will be far more emphasis on the content of your proposal or "the form of presentation" of information and who you will need to obtain information from both within and outside the business.
Do bear in mind that the whole point of the new legislation is to create a fairer playing field, but the age old principle that insurers "need to be told" does not really go away. If anything, the provision of accurate and relevant (or material) information will be a key hurdle for policyholders when purchasing insurance cover.
In practice, we would expect that instead of leaving everything to your insurance managers, all relevant personnel should come together and collaborate on the search for and provision of relevant information.
In this part, we confine ourselves to looking at the role of senior managers or senior personnel within the business.
- It is likely that in larger organisations, senior management could include a large number of individuals.
- It may include a number of different companies e.g. subsidiaries.
- It may include personnel in different jurisdictions.
- Great care should, therefore, be taken in conjunction with your brokers to try to agree a specific brief and group of senior management "knowledge holders". Indeed engaging with the insurers on this subject will be a priority.
- We advocate taking great care in putting this group of people together.
- Senior management in this context will include group insurance managers, risk managers and it may also include members of the Board.
- Our experience is that it is sometimes a struggle for insurance managers to raise the profile of insurance on a Board agenda. You can no longer afford such an approach to insurance.
Beware policy renewal!
As explained in our earlier guide, the Insurance Act 2015 not only applies to new policies but also those falling due for renewal after 12 August 2016 (unless the policy disapplies the 2015 Act). In a nutshell, this is because the law treats an insurance renewal as a new, standalone "contract". This is a commonly misunderstood point.
It is our experience that in a busy commercial world, renewals represent real risk of misrepresentation/non-disclosure by temptation for businesses/brokers to simply regurgitate information disclosed to insurers in the previous year. The risk of regurgitation is amplified in the circumstances where the rules of disclosure will change. We strongly recommend that renewals post 12 August 2015 are actively audited against the new Act's requirements.
The Road to Success
There is no doubt as we set out in our Business Guide, that policyholders who get this right will enjoy much greater benefit that the Act provides. However, the new regime can also pose risk for the unwary.
Your starting point on the road to getting this right is:-
- Start now - do not wait until shortly before renewal. Selecting and assimilating information, particularly where you have overseas branches and a greater number of senior management whose input is required, will take far longer than if you are a smaller organisation.
- Look closely at the structure of your business i.e. the corporate structure and appoint/identify your senior management team.
- Raise awareness within the business. We have looked at the challenge some insurance group managers have in escalating the subject of insurance to the Board, but you can demonstrate the value of insurance by highlighting historic losses and costs to the business.
- In conjunction with your broker, prepare detailed notes outlining all the information required. This is the area you will require most input on from your broker. You must rely on your brokers here and do not be tempted to place your own interpretation on your broker's guidance.
- Try to agree via your broker and with insurers which senior management personnel and areas they want information about. Better negotiation by your broker of contract wording will assist. Seek legal input where appropriate.
- Be aware of changes in personnel and any challenges about the lack of knowledge that may be a consequence of that.
- Ensure as a business that insurance is given far greater priority than it has been historically as the benefits of such an approach, in our view, are obvious.
In Part 2 we will look at what sort of "knowledge" and information insurers will require at carrying out reasonable searches for information and the practicalities of what that entails.