Insurance Act 2015 Informative Guide
Duty of Fair Presentation of Risk
From 12 August 2016, the duty of disclosure for commercial insurance contracts changes with the implementation of the Insurance Act 2015 (“the Act”). For risks incepting or renewing on or after 12 August 2016 you will have a duty to make “a fair presentation of the risk”. To meet this duty, you still need to disclose all material information to insurers which is known to you (or which ought to be known to you). Information is material if it would influence the judgement of a prudent insurer in establishing the premium or determining whether to underwrite the risk and, if so, on what terms. Material Information does not necessarily have to increase the risk of the insurance under consideration.
Under the Act you will be deemed to know information if it is known to any individuals within your business in a senior management or decision making role or anyone responsible for arranging the insurances.
Furthermore, under the Act you “ought to know” what should reasonably have been revealed by a reasonable search for information held internally or externally (including by any third parties to whom services are outsourced, consultants and agents). To be able to argue that you have satisfied the duty, should an insurer allege that you have not, you must now do the following:
1) Carefully consider who are the individuals within your business in a senior management or decision making role or anyone responsible for arranging the insurances;
2) Make enquiries of those individuals as to whether they are aware of any material information;
3) Record the results of these enquiries in writing; and
4) Consider whether any material information could be held anywhere other than with those individuals identified and if so, you will need to carry out a reasonable search. This could mean making enquiries of individuals or may in some circumstances mean having to carry out an electronic and/or physical search of records.
It is important to bear in mind that if material information is held by third parties such as accountants, lawyers, managing agents or internally by branch offices, even if it is not known to senior management or those in a decision-making role or anyone responsible for arranging the insurances, it may need to be disclosed. Please note that you must not rely on information that may be held by us as your broker in relation to other policies that we may place on your behalf. You must
ensure that all relevant information is provided to us for each and every policy that we place on your behalf. We accept no liability to you in this respect.
The duty of fair presentation of risk also applies when:
• In completing a proposal or claim form or questionnaire for your insurer, the accuracy and completeness of all answers, statements and /or information is your responsibility and it is of paramount importance that all relevant information is provided and that it is accurate.
• If you become aware that any material information that you supplied before the contract of insurance is finalised is incorrect or has been omitted, you should inform us immediately. If you are unsure if information is material, you should disclose it.
As mentioned above the duty of fair presentation is in relation to commercial insurance contracts. However, in relation to non-commercial insurance contracts the duty is on the client not to make any misrepresentation or fail to disclose any information which s/he ought to have disclosed.
The consequences of not abiding by the above
Under the Act, if there is a breach of duty of fair presentation of risk, the remedies available to insurers will vary dependent on whether the breach is deliberate, reckless or otherwise. For deliberate or reckless breaches, the insurer may avoid the contract, refuse all claims and retain the premium paid.
For other, non-fraudulent or non-reckless breaches the remedy will depend on what the insurer would have done had a fair presentation of the risk been made. If the insurer would not have accepted the risk it can void the contract but must refund premiums paid. If the insurer would have accepted the risk on other terms the contract is to be treated as if those terms applied, if a higher premium would have been charged any claims payments can be reduced proportionately. This latter provision is especially important because if insurers can show that they would have charged only a modest additional premium, the impact on a claim could be disproportionately large. For example, if there is a claim for £100 and the original premium charged was £200. If, the higher premium that would have been charged was £300 then the insurer can reduce the claim settlement to 200/300 x 100 = £66.67.
For certain policies, the insurer may change the remedies available to them from those described above. In such circumstances, we will inform you of the changes and what this means for you. It is therefore important that you understand and comply with your obligations under the Act. If you have any questions on the above, then please get in touch with us.
We can only offer guidance as to how we perceive the implication of the act on yourself. We can therefore not be held responsible for the above and if you are seeking any form of conclusive guidance please seek your own independent legal advice.
If you would like to discuss any of the above, please feel free to call us on 01707 902 400.