The application of new insurance contract law is proving to be a complex and burdensome task for risk managers. Failure to realise the enormity of the task or prepare early for the Insurance Act will inevitably see some companies sign contracts this year that fail to comply with the new law.
Risk managers are currently preparing for the Insurance Act, with some already undergoing policy renewals with the legislation in mind. In force from 12 August, the Act has important implications for policy wordings, disclosure and the way in which risks are presented to underwriters.
Early application of the Act has already highlighted some unintended consequences, according to Charles Beresford-Davies, head of the risk management practice at Marsh in London.
Application of the Act is “proving an extremely complex process” that presents a huge burden for risk managers, he said. “For the larger, more sophisticated buyers, the Act has created a great deal more process, documentation and due diligence,” he added.
According to Clive Clarke, deputy chair of the Association of Insurance and Risk Managers in Industry and Commerce (Airmic) and chair of the association’s insurance steering group, much of the initial work to interpret the Act is falling on risk managers, supported by their brokers.
Mr Clarke noted that interpreting and applying the Act is proving to be a bespoke exercise, perhaps more so than many had expected. Given differences in corporate structures, risks and insurance arrangements, it is down to risk management teams to apply the act to their own businesses, he said.
Many wrongly believe that existing market practices will meet legal requirements under the Act, believes Bruce Hepburn, chief executive of insurance governance adviser Mactavish. “Even though the Act rebalances the law in favour of policyholders, it will set new standards of disclosure and placement that won’t be met by existing practices in most cases,” he said.
There is no definition given under the Act for variations and there will therefore be legal uncertainty around changes made to contracts entered into before 12 August, according to Mr Hepburn. “It is not clear how changes made after 12 August will interact with the existing contract,” he said.
Another contentious issue has been the degree to which companies can bring about benefits of the Act ahead of its August deadline.
“We have been advising clients to behave as if the Act were in force. Even where they renew before August, they should prepare for their new obligations—such as around disclosure, gathering and presenting data and audit trails—under the Act,” advised Mr Beresford-Davies.
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