New Insurance Bill would present challenges to insurers, says expert

Insurance regulation specialist Alexis Roberts of Pinsent Masons, the law firm behind Out-Law.com, said that the Insurance Bill, proposed earlier this week by the UK government, was an attempt to align business insurance rules more closely with those that govern consumer insurance laws.

"Insurance contract law has needed updating for many years and this programme of development is definitely welcome," Roberts said. "There are challenges for insurers as a result, however. They will need to make sure their policy wordings are updated to make sure they are more explicit about the types of risk that might be excluded in the event of a claim. They will also need to make sure they ask potential policyholders the right questions at proposal stage in order to have sufficient information to assess the risk properly; not asking the right questions could make it harder going forward to decline claims which they may not have intended to cover."

Under the proposed new rules, businesses would be under a new "duty of fair presentation". This means they would have to present insurers with a "fair presentation of the risk" they would be taking on if they were to proceed with providing them with cover.

Under this duty, businesses would be under a general obligation to engage in "disclosure of every material circumstance" whey they know or ought to know of, or "failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances".

A business is said to 'ought to know' of material that could "reasonably have been revealed by a reasonable search of information available" to them, whether internally or externally, although the disclosure requirement does not apply to confidential information.

If insurers do not enquire as to the risks facing businesses, the businesses do not have to "disclose a circumstance if it diminishes the risk" or if the insurer already knows of it, ought to know of it, is presumed to know about it or it is "something as to which the insurer waives information".

If businesses do not adhere to their fair presentation duty then insurers may, in certain circumstances, refuse any claims made by those companies.

The Bill would also see 'basis of the contract' clauses abolished and instead introduce new rules on warranties. Under the proposals, no longer would insurers' liabilities be said to be discharged if a business acts in breach of warranty. Instead, the liabilities of insurers would be suspended until such time as there is a remedy for the breach, at which stage cover would be said to apply again.

Insurers would also have the power to recover money they pay out to businesses that have made a claim if it transpires the claim was fraudulent and to terminate their contract with those companies.