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Updated insurance law to bring more clarity to U.K. buyers

Posted On: Jun. 21, 2015 12:00 AM CST

Updated insurance law to bring more clarity to U.K. buyers

LIVERPOOL, England — Updated insurance law will give U.K. buyers greater clarity about their coverage but will create more work for buyers and brokers in presenting risks to underwriters.

The Insurance Act 2015, which will apply to all policies placed or altered after Aug. 12, 2016, replaces the century-old Marine Insurance Act 1906 and is intended to eliminate loopholes that could lead to legal disputes.

But the law will place a greater onus on buyers to ensure that they have fairly presented their risk to underwriters as well as disclose any knowledge pertinent to the risk of senior management and the insurance team, including brokers, among other things.

The issue was a discussion topic for many attendees at London-based risk management association Airmic Ltd.'s annual conference in Liverpool, England, last week.

While the new law will retain the current definition of a “material circumstance” — something that would affect the judgment of a prudent insurer in deciding whether or not to take on the risk — the updated law provides further clarification, London-based consultancy Mactavish said in a guide on the new act.

For example, a material circumstance according to the Insurance Act could be “special or unusual facts relating to the risk; any particular concerns which led the insured to seek insurance cover for the risk; and things which should be dealt with in a fair presentation of risks of the type in question, in the view of those involved in buying or selling that insurance,” Mactavish noted.

“The Insurance Act provides clarity for the client, broker and carrier,” said Steve Hearn, deputy group CEO of Willis Group Holdings P.L.C. in London.

“Anything which creates more certainty, we would applaud,” said Lesley Harding, vice president and head of insurable risk solutions at BP P.L.C.

But the new rules likely will create “an iterative step” in the insurance placement process, whereby underwriters, or brokers, will have to come back to the buyer with proposed wording to ensure that the underwriter understands the buyer's presentation of their risk, she said.

“Anything that puts the client on the front foot is good ... this change will help clarity and give customers more certainty,” said Grahame Chilton, CEO of Arthur J. Gallagher International.

But there clearly will be an onus on buyers to disclose more information, he said.

The requirement for buyers to ensure they have given a fair representation of their risk will “throw up some very technical issues on (policy) wording,” said George Davies, chief client officer for the United Kingdom and Ireland at Marsh Ltd.

The “triumvirate” of buyer, broker and insurer will never be more important, he said.

Buyers will need to clearly communicate to their broker the process they undertake to ensure that all material circumstances are disclosed to underwriters in a well articulated manner, Mr. Davies said.

Under the new law it will be vital that buyers can demonstrate the process that the company's risk function has gone through to ensure that everything relevant to the risk is represented in the submission, he said.

There will be some challenges around data gathering for buyers, he said.

The change of law probably will result in more work for insurance buyers in presenting their risks, said London-based Richard Mattick, of counsel at Covington and Burling L.L.P.

And a great deal of the burden also likely will fall on brokers, whom buyers will call upon for help.

In preparation for the change, risk managers should leave more time for their renewal — particularly for data gathering, Mactavish said in its guide.

Other areas that buyers must consider include company coverage for individuals — such as directors and officers or errors and omissions liability — and how to ensure that those individuals have disclosed all information material to their risks without a great deal of extra paperwork, according to the guide.