Proposed changes to the United Kingdom's century-old insurance contract law will prompt underwriters to review their business practices and policy wordings and should eliminate claims denials due to inadvertent buyer errors.
Representatives of insurance buyers welcomed the proposal they say will result in greater clarity for risk managers.
The Insurance Bill, HL2014-15, was introduced in the House of Lords, the U.K. Parliament's upper chamber, in late July. It is expected by the Law Commission and industry experts to receive royal assent — by which Queen Elizabeth II signs it into law — by March 2015 and go into effect soon thereafter.
The bill would reform measures contained in the Marine Insurance Act 1906 that applies to commercial insurance contracts written in the United Kingdom.
The legislation would change current practices that include insurers being able to avoid paying claims if any part of an insurance submission contains a misrepresentation — even if that information is not pertinent to the claim.
The bill represents the greatest change to insurance contract law in the United Kingdom in more than 100 years, said Nigel Brook, head of reinsurance at law firm Clyde & Co. L.L.P. in London.
Insurers will have to change the way they word contracts as a result, said James Miller, partner and head of insurance at London-based law firm Reynolds Porter Chamberlain L.L.P.
Underwriters will monitor any modifications to the bill as it passes through Parliament and then will have to adapt in such a way so they can depend on buyer disclosures, said Neil Maidment, chief underwriting officer of Beazley P.L.C. in London.
The proposed changes will be beneficial to insurance buyers and underwriters, said Chris Jones, director of market services at the London-based International Underwriting Association, which represents insurers in the London market.
In general, he said, the proposed changes are “fair and balanced,” but underwriters may need “to revisit policy wordings.”
He said the IUA would work with brokers and buyers to ensure policy wordings comply with the law when it goes into effect.
The bill is not designed to stop insurers from properly scrutinizing claims, said Nick Young, a partner at law firm DAC Beachcroft L.L.P. in London. Rather, the proposals are aimed at “those rare situations where claims handling has fallen very short.”
The proposal represents a “root and branch” review of the way business is written and claims are handled, and is intended to reflect today's best practices, he said.
Large, multiline insurers are likely to already be familiar with many concepts in the bill, particularly since similar changes for personal lines insurance took place two years ago, Mr. Young said. But smaller, specialty insurers may be less familiar with the concepts, and l need to “make sure their practices are fit for purpose in 2015.”
Risk managers 'delighted'
John Hurrell, CEO of Airmic Ltd., which represents U.K. risk managers, said insurance buyers were “delighted” with the proposed changes. As soon as the bill receives royal assent, Airmic will work with insurers to start behaving as though the bill already is law, he said.
“We can help change market behaviors,” Mr. Hurrell said.
A proposal to introduce damages for late payment of claims was dropped from the final version of the legislation, but may be introduced later by the Law Commission, sources said.
Peculiarities of English law, which treats insurance payments as damages, makes it tricky to introduce damages for late payment of claims, Mr. Hurrell said.
But the Law Commission, the independent body that keeps U.K. law under review and drafted the current proposal, has indicated it plans to find a way to introduce the concept of damages for late payment of claims, Mr. Young said.