Getting up to speed with the Insurance Act 2015
The new Insurance Act 2015 will come into effect in August this year and will make key changes to the responsibilities held by insurers and policyholders both during the underwriting process and during the entire term of the insurance contract. Here we’ve highlighted the key changes to the legislation which will replace the Marine Insurance Act of 1906:
Sharing the responsibility of Disclosure: Under the acting legislation, policyholders are expected to disclose to the insurer all “Material Facts” which 1) they ought to know and 2) could be found through any reasonable search. As part of the changes, both the insured and the insurer will share the responsibility of disclosure; this means the insured will only need to provide sufficient information for a prudent insurer to make an inquiry.
What does this mean? There is now a “duty of fair responsibility” for the insurer. Although there will now be a shared amount of responsibility and increased engagement between you and your insurer, information will still be expected in a clear and reasonable manner so ensure issues surrounding “material facts” have been discussed between all relevant parties and any information has been clearly structured.
Increasing the number of Remedies: Under current law, if a policyholder fails to disclose a “material fact” the insurer is entitled to dismiss the policy and act as though it never existed. The new act sets out remedies to make sure the insurer acts in the insured’s best interest:
1) If the insurer would not have agreed to the contract had it know this piece of “Material Fact”: The insurer can avoid the policy, but must return all premiums paid during the existence of the contract.
2) If the insurer would have agreed to the contract under different terms: The policy will continue to exist and will change to include the new terms for the remainder of the contract.
3) If the insurer would have agreed to the contract but at a higher premium: The insurer can reduce the amount of the claim proportionately to the cost of the premium. The policyholder would then pay the rest of their premiums at the increased amount.
What does this mean? Unless a breach of contract can be proven as “reckless”, policy holders will have more options when it comes to receiving the cover they require at the time of their claim.
Warranties and Fraud: Under the new act, any breach of warranties will now suspend the contract as opposed to dismissing the policy altogether until the warranty breach is remedied. In regards to Fraud, insurers will not be liable to pay any claims which relate to a fraudulent act or claim. Any claims prior to the fraudulent act will still need to be paid in full, which reflects the law as it currently stands.
Are you informed on how the new changes in legislation will impact future policies for your business? Any further changes which you think could have been included in the new Act?
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