We continue the conversation around the Insurance Act 2015 and how the changes are affecting the whole industry.
“It is not the strongest or the most intelligent who will survive but those who can best manage change.” - Charles Darwin
Spend five minutes with a search engine and anyone interested in the Insurance Act 2015 (the Act) will find numerous guides as to how the law is changing. Insurers and others in the industry have been encouraged to ready themselves for the biggest shake up in non-consumer insurance law in a century. Change can present opportunity, and those that help the industry and their customers adapt can differentiate themselves, gaining a competitive edge.
Naturally, a great deal of focus has been on how insurers will adapt to handling claims and the change to remedies for non-disclosure and warranty breaches. Many insurers have taken steps to remove ‘basis of cover’ provisions from their policies and are reassessing whether warranties continue to serve a useful purpose. An area that has attracted less attention, however, concerns the rewards of predictability and a less fraught claims process, particularly to large corporate insureds.
An important role
Brokers in particular have a critical role to play in this adaptation by aligning their client’s processes with the prescriptions in the Act. Once you put aside the big changes such as remedies and the operation of warranties, the revised law presents less of a revolution - leaving instead a codification of much that has gone before with a refreshed emphasis on obligations brought about by the insured’s new ‘duty of fair presentation of the risk’. In that respect, the real benefit to all involved in the underwriting and claims process is the clarity and certainty that comes with the knowledge that if the Act is followed then a claim will be paid. If the claims process is less conflict-driven then that means the underwriting process has worked better, with the prospect of insurers receiving the right premium earlier, and a more straightforward, efficient claims handling process reducing the potential to sour relations with insureds through costly disputes.
Focusing on the duty of fair presentation reveals that it is really a duty to search for information that will influence the underwriter, and then to provide that information in a clear and accessible way. Both the collection of information and its organisation require an understanding of what the mythical ‘prudent’ underwriter needs – although how that influences the actual underwriter is still relevant. Of course, the challenge to brokers is to take the Act and help their clients apply it to their own businesses. That in turn will require an understanding of what is expected within the specific insurance market in which the business is placed – the ‘prudent underwriter’ lives there – and help formulate a strategy for collecting appropriate business data from the right people. If the documentation of that process provides a hard link between the type of information that the underwriter needs and that which the insured has provided, then it will make disputes and claims reductions less likely.
Taking this a step further, one can see that the adviser who puts into clear English a distillation of what the market expects from a reasonable search for information might develop an invaluable and market leading protocol that will add value to both sides of the transaction: insureds would know what they have to do and underwriters would have greater confidence that they will receive the appropriate information. Of course, some brokers will have had guidance of this type available for some time, but the codification of the law should add confidence to the proposition that if you follow a defined process then the outcomes will be more predictable. That in turn could encourage further refinement of protocols giving even greater certainty.
Adapting to the Act should pay a dividend to all involved with the sale and purchase of insurance cover. Those that facilitate an efficient transfer of information from insured to underwriter should thrive. Those that do not may find their own business, and professional indemnity claims record, coming under pressure.