Insurance Act 2015 – the changes and how they affect you

These changes are part of a wider transformation of the insurance industry, which began with the Consumer Insurance (Disclosure & Representation) Act 2012 and is continuing with the Insurance Act, which focuses on commercial insurance contracts.

The new Insurance Act, rather than being a rigid code, sets out principles to be followed, with the aim of being sufficiently flexible to cater for businesses of all sizes.

It seeks to clarify the current law and modify the duty of utmost good faith that underlies insurance contracts by introducing a new duty of fair presentation. This requires policyholders to either disclose to insurers every material circumstance which the insured knows or ought to know; or provide the insurer with sufficient information to put a prudent insurer on notice that it needs to make further enquiries into those material circumstances.

Some of the key points are:

• Disclose every material circumstance which you know or ought to know that could be undertaken by a ‘reasonable search’;
• Your duty is then satisfied if every material circumstance relating to the business is disclosed or sufficient information is provided to put a ‘prudent’ insurer on notice to make further enquiries;
• Any warranty breach now suspends rather than avoids the insurer’s liability until the breach is remedied and then the policy will resume in full force; and
• The Insurance Act may allow the insured to avoid an insurer’s defence of breach of warranty by showing that the breach could not have increased the risk of the loss in question occurring.

Where third parties, such as land agents, arrange insurance on their client’s behalf, they are carrying out an activity which is regulated by the Financial Conduct Authority. As such, those third parties will be deemed to have expertise and a detailed knowledge of the property to be insured. Their responsibility to disclose circumstances which they ‘know or ought to know’ is, if anything, therefore greater than previously, when this responsibility rested primarily with the client.