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U.K. insurance reforms ease buyers' disclosure burden

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Proposed changes to insurance law in England and Wales will reduce the burden of disclosure on insurance buyers, experts say.

As part of a long-running project to update the Marine Insurance Act 1906, the legal framework for insurance law in the United Kingdom, the U.K. Law Commission late last month proposed a series of changes to the duty placed on insurance buyers to fairly present their risks.

Interested parties have until Feb. 21 to respond to the proposed changes.

Under current law, insurers may avoid claims if any material in an insurance submission is incorrect, even if that information has no bearing on the claim.

But the Law Commission has proposed a change that would require a buyer to make “a fair presentation of the risk” to an insurer that “discloses every material circumstance which the proposer knows or ought to know” or that provides sufficient information to put a “prudent insurer on notice that it needs to make further inquiries.”

Rather than the insurer outright rejecting a claim if it discovers incorrect information that is not material, the proposal would allow insurers to take “proportionate” action, such as readjusting the premium or the terms and conditions of the contract had the insurer known the information before underwriting the account.

The proposed changes are “evolution not revolution” and likely will be viewed as fair by insurance buyers and insurers, said Nick Young, a partner at law firm DAC Beachcroft L.L.P. in London.

The proposed changes would remove the “one size fits all” remedy for insurers to avoid claims when immaterial information is incorrect or omitted in submissions, he said.

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Airmic Ltd. supports the plan and believes that the proposals for proportionate remedies for innocent nondisclosure are fair, said John Hurrell, the risk management association's CEO.

The revised disclosure requirements should mean that “buyers will have more certainty over cover,” said Helen Chapman, a partner in the insurance and reinsurance department at law firm Hogan Lovells International L.L.P. in London.

Under the proposal, underwriters likely would need to consider and carefully set out clear parameters they use to underwrite risks to document what they would have done differently had they been aware — at the time of underwriting — of information that later comes to light, she said.

The Law Commission also proposed that buyers be able to seek damages for paying insurance claims late.

The concept is a new one in U.K. insurance law, Mr. Young said, but as long as an insurer can demonstrate that it had reasonable grounds to dispute a claim, therefore delaying payment, the proposed rules likely would not be applied.

The Law Commission is expected in the next few weeks to announce further proposed changes to the law, which Airmic said it hopes includes a ban on so-called basis-of-contract clauses, said Mr. Hurrell.

Under such clauses that are based on current U.K. law, insurers can refuse to pay claims if any information in a proposal form is found to be incorrect.