They say all is fair in love and football but what about insurance?
First published in POST Magazine.
Fairness, it’s something that has been on my mind since the Insurance Act 2015 came into force in August.
The Act's intention was to arrive at a set of rules fit for the 21st century which would give insurers and insureds a level playing field. At the placement of the risk the aim was to get greater transparency and communication between insurers and insureds so that the information disclosed to insurers would be relevant to them. In return for the insured tailoring their disclosure more accurately, the Act tempered the remedies available to Insurers if the Insured failed to disclose everything material.
The Act has not achieved its aim because it has only been in force for a few months and already almost all insurance contracts are being amended by the brokers on behalf of their insureds to contract out of the Act’s provisions. They are seeking to minimise the disclosure requirements it introduces and excluding in some cases even remedies for deliberate or reckless misrepresentation (let alone the proportionate remedies).
Insurers are being asked to agree at inception of the policy that the duty of fair presentation imposed upon insureds has been met by whatever information the insured has provided to insurers whether or not it is complete or the insured has been diligent in its preparation.
This effectively removes any potential recourse to insurers if the risk has not been properly presented. To my mind this is unfair to insurers and it also penalises those diligent clients that have done the right thing and tried to fairly present their risks.
We – like most insurers – are fully supportive of the Act and believe it represents our philosophy of clear and fair client focus. But we need to remember that we are all in this together.
The Act was intended to make the placement of insurance more transparent and the remedies if the insured did not deliberately or recklessly omit to inform insurers of a material fact fairer through the options of amending the policy terms or reducing the amount of claim paid. We were very happy to support this approach as beneficial to all parties.
Clauses that ask insurers to agree at the inception of the policy that the duty of fair presentation has been met go against the fundamental requirement of the Act that the policyholder – and their broker – should seek to ensure that all material information is disclosed. Additionally they may deprive insurers of recourse against fraudulent, deliberate or reckless non-disclosure by the client or their broker.
This goes against the very spirit of the Act, which has fairness as its cornerstone.
It is up to us as an industry – brokers and insurers – to make sure that these new rules work in the way they were intended.