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Risk managers prepare to meet challenge of reforms to U.K. insurance laws


HARROGATE, England — Insurance buyers, brokers and underwriters still have work to do to be ready for the U.K.'s new insurance law in August.

The Insurance Act 2015, which replaces the Marine Insurance Act 1906, will make it more difficult for insurers to deny claims, experts say. But it also places new disclosure requirements on buyers.

The new law closes a loophole in the 110-year-old statute that enabled insurers to avoid claims if a buyer failed to disclose any information, even if the insurer had not requested it.

Under the new law, insurers can avoid such claims only if the buyer's nondisclosure was “deliberate or reckless.”

Instead, the act imposes on buyers the duties of “fair presentation” of risks and requires they disclose every material circumstance they know, or ought to know, that would put a “prudent insurer” on notice, among other things.

During the Airmic Ltd. annual conference in Harrogate, England, this month, experts said buyers, brokers and insurers in the United Kingdom are preparing for the requirements, but certain parts of the market still have some way to go.

According to a survey of more than 150 Airmic members, about 90% of risk managers said they have taken “significant steps over the last 12 months” to ensure they will be compliant when the law goes into effect in August, said Airmic CEO John Hurrell.

Almost 80% said they had reviewed policy wordings; 70% said they had talked with their broker about ensuring compliance; and about 45% said they had reviewed internal processes to collect renewal information to ensure a fair presentation of their risks.

But fewer than 25% had reviewed responses from their insurers confirming their own compliance, while just over 20% said they were doing business with their insurer as if the law already were in effect. Fewer than 10% said they had done nothing to prepare.

“None of us should underestimate the implications of the act in what we all do day to day,” said Richard Pryce, CEO of the European operations of QBE Insurance Group Ltd. in London.

He said he believes smaller insurance buyers may have to rely on their brokers to come to grips with the requirements.

“I have some fear that the industry has been slow in getting to this,” said Paul Jardine, executive vice president and chief experience officer at XL Catlin in London.

The workload associated with preparing for Solvency II, the risk-based capital regulatory regime for insurers and reinsurers in Europe that went into effect this year, may have delayed insurers in preparing for the Insurance Act, Mr. Jardine said.

“We've been on a journey for about 12 months in preparing (for the act), and I feel that we are in a good place,” said Tracey Skinner, director of group insurance and risk financing at BT Group P.L.C. “But from the buyers' perspective, with an 18-month run in to this act (from passage to implementation), there does seem to have been a pause” in the insurance industry.

She said she expected “a little bit of a muddle” about interpreting the law when it does go into effect.

“We have been doing a lot of work to understand the act and make sure that clients understand it,” said Charles Beresford-Davies, U.K. managing director and risk management practice leader at Marsh Ltd. in London.

“Fundamentally, an insured's obligation to disclose information has not changed,” he said. It's the process for disclosure and ramifications of improper disclosure that will change, he said.

Marsh has focused on ensuring that buyers have a process to be certain they are presenting their risks to underwriters in a manner that complies with the law, he said.

While the act “clearly narrows an insurer's ability to deny a claim,” as yet there is no case law or precedent, so it remains to be seen what the law will mean in practice, Mr. Beresford-Davies said.

Buyers will have to make some “judgment calls,” about what is “reasonable” to disclose, said David Hertzell, a consultant at law firm Berrymans Lace Mawer L.L.P. and former member of the Law Commission who worked extensively on reforms that led to the updated Insurance Act.

To comply with fair presentation of risks, buyers should document their processes and have clear frameworks about disclosure, said Rob Smart, research and technical director at London-based consultant Mactavish Group.