Fitch believes the UK Insurance Act will result in more paid claims but that insurers will be forced to raise premiums to compensate.
Changes to UK insurance legislation under the Act is intended to make it harder for insurers to dispute commercial insurance claims.
The rating agency said that the Insurance Act, which comes into force this August and applies to all contracts under UK law, will result in fewer disputes over commercial insurance claims and an increase in the number of claims paid.
Fitch also predicts that when claims are disputed, insurers may attempt to deal with them more quickly to reduce the risk of being held liable for damages.
However, on the flip side for buyers it thinks insurers will increase the cost of insurance to make up for higher claims costs.
But the rating agency thinks the Insurance Act will increase price competition among insurers that will be less able to differentiate themselves on service and claims payment. This price competition means that increased premiums will be kept in check, added Fitch.
Fitch also notes that the Insurance Act should reduce data dumping from insureds when it comes to disclosure and presentation of risk.
The Insurance Act will make it harder for an insurer to refuse a commercial insurance claim due to insufficient disclosure. It will also prevent insurers from refusing to pay if a business customer breached a requirement of the policy that was entirely unrelated to the claim, such as if the customer failed to install required fire alarms, but then claimed for a loss from flooding. explained Fitch.
Separately, the Enterprise Act, which will come into effect next year, will give customers the right to sue for damages caused by late claims payment.
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