Recent changes to the Insurance Act relating to disclosure of material facts and the basis of contract clauses will radically alter UK insurance contract law, according to experts.
A new law passed last month will see the introduction of a ‘duty of fair presentation’ of risk. This will replace the existing duty on those taking out insurance to disclose all ‘material facts’.
The new rule, which is expected to come into force next summer, will update those outlined in the Marine Insurance Act 1906 and is expected to reduce insurers’ ability to avoid paying claims or terminating cover.
Currently, insurers are able to avoid liability if the policy holder has failed to disclose a material fact, regardless of whether the non-disclosure was intentional or has any bearing on the loss claimed under the policy.
Under the new ruling, the insured is required to make a ‘fair presentation’ of risk to the insurer before a contract of insurance is entered into and to provide sufficient information in relation to material circumstances as would alert a prudent insurer to the fact it needs to make further enquiries.
“This ruling represents a shift in onus from the insured to the insurer when it comes to the assessment of risk,” explains James Castell, Director of Rentguard Insurance.
“It’s a change that reputable insurers should embrace rather than be nervous of, as it will clear up what has become something of a grey area in recent years,” adds Castell.
Currently the law requires those purchasing insurance not only to answer the risk questions accurately, but also to disclose any material facts which the insurer should be aware of. However, with the growth of individual and personal lines policies being sold, this has become problematic as a non-industry professional cannot realistically be expected to know what the insurance company ‘should know about’.
The new rules set out that although the customer must answer the risk questions fully and honestly, they will no longer be expected to disclose other personal circumstances.
“Insurers will need to make sure they ask the right questions, and word them correctly to identify risks which they would like to know about. This will mean the customer is protected, and treated fairly, as long as the answers provided to the company are completely truthful and accurate,” says Castell.
The new ruling is not expected to apply to commercial policies, with businesses still expected to disclose any features of their business which they feel the insurers should know about.
Article Courtesy of Rentguard Insurance