Buyers of commercial insurance should be aware of the Insurance Act 2015 which affects all business insurance subject to the law of England, Scotland, Wales or Northern Ireland arranged or amended after 12 August 2016.
The change in law updates the legal framework to be more appropriate for modern business requirements. The key new requirement that businesses need to be aware of is the Duty of Fair Presentation.
The law is being updated to make it simpler and easier for businesses to get claims paid by insurers and to assist insurers, brokers and customers ensure that insurance contracts are fit for purpose.
In essence, businesses get fairer outcomes in the event of a claim, but only if they demonstrate an adequate approach to disclosing information about their risk to insurers before the insurance is agreed ñ in the form of the new Duty of Fair Presentation.
The key things to remember about Fair Presentation are:
- All commercial insurance arranged or amended after 12 August 2016 will be affected, so businesses should start to prepare now.
- It builds on existing underwriting practices, but is more process focused than the duty of disclosure it replaces.
- It should not mean reinventing the wheel ñ building on existing practices and internal information processes is key to avoid unnecessary business disruption.
- Successful Fair Presentation is measured in relation to your specific business, not a standardised checklist
The central requirement of Fair Presentation is still to share all material facts, accurately and in good faith. However the new duty introduces some new concepts:
Material accuracy and good faith
- The core requirements from you essentially remain unchanged ñ you need to take reasonable steps to ensure information provided when seeking insurance is accurate and complete to the best of your knowledge.
- The Act also specifies examples of important details to include, such as special or unusual details of the business or existing areas of concern relating to the types of risk covered by the insurance.
Whose knowledge to include
- Sufficient enquiries to build a picture of your risk must also be conducted and material information arising must be included. This may include enquiries made of external parties such as managing agents, accountants, solicitors or your insurance broker.
Clear and accessible presentation
- The presentation of information should include adequate signposting and flag important points to insurers.
- Data dumping is prohibited.
- Information that an insurer should know does not need to be included in the presentation, but check with them before omitting any risk information
- Insurers will make further enquiries if there are obvious omissions, questions or gaps to the information presented.
Taken together this means there will be more focus on the information gathering process not just the facts themselves
BE PREPARED: INSURERS KEY EXPECTATION
Each Fair Presentation will be unique and specific to a business ñ whatís reasonable for one business may not be reasonable for another. However insurers expectations for customers are guided by the same principles. These are the key areas you should consider:
1. Audit trail of how risk information is put together
- Principal requirement is for you to have an audit trail of how the information was gathered.
- To demonstrate compliance with the Act you will need to be able to summarise and document:
- Who is consulted.
- What information is asked for.
- How information is collated and checked.
2. Accurate and complete information
- The core information we ask for as part of proposal forms or insurance submissions (such as claims information or asset value) will continue to lie at the core of a Fair Presentation and should be complete as accurately and fully as possible.
3. Flag changes and differences
- In addition to answering our questions you must flag special or unusual facts about the risk.
- These will be unique to your business but could for example include:
- Operational factors which make your business different from competitors or industry standards.
- Recent or planned business developments such as new products and services, acquisitions, customers or contracts, which will affect your risk profile.
- Known issues where you already have a concern about the potential for increased risk in future.
- Changes in business operations, which might not be fully explained in the standard underwriting information such as business units with different working practices.
- For all changes it is important to describe the circumstances and what you think the risk impact could be.
4. Well-structured information
- The presentation should include clear structuring and signposting of key information.
- For larger more complex businesses, with extensive information sets, an executive summary and detailed contents page would be expected.
5. Ongoing notification of changes
- Having an ongoing process in place to monitor and flag fundamental changes to your risk during the period of the policy is important, as this could change your insurance needs.
6. Additional enquiries
- It is critical to consider the range of people you need to consult within the business. This will naturally be specific to your business but could include:
- Who counts as senior management may differ by type of risk but as well as directors it is likely to include line management and those who control policies affecting risk or with specific risk management responsibilities.
- Relevant third parties who also hold information on your risk ñ like outsourced service providers (e.g. property managing agents, IT providers or facilities management) or the knowledge of your broker (e.g. survey reports, claims data or sector specific risk knowledge).
- For such enquiries you should record not just the information identified but also the list of consultees and reasoning behind their selection.
7. Build on existing processes
- a. We know that considerable effort is put into your disclosure already. Adapting to the new requirements should not mean creating a process from scratch. Quick wins to think about are:
- Current processes can be enhanced by adding more detail, thinking through the list of individuals consulted and including supplementary explanatory notes where necessary.
- Drawing on and adapting existing internal sources of information ñ such as board reporting, risk or contract registers ñ to build the more detailed information set that Fair Presentation requires.
- Recording and explaining the current enquiries made.
For more information please do not hesitate to contact ourselves.
Source: www.rsabroker.com/system/files/The Insurance Act – What does Fair Presentation mean for your business March 2016.pdf