The U.K.’s Insurance Act of 2015 imposes a new legal framework that affects every business insurance policy placed in the London market (and every London policy renewed or amended) going forward. The act is good news/bad news for policyholders.
On the good side from a policyholder perspective, insureds can now seek damages from insurers based on unreasonable delays in claims payments. This applies to commercial insurance contracts after May 4, 2017. To take advantage, policyholders must notify the insurer when the policy is put into effect of any reasons why a delayed claims payment could adversely affect their business.
The British Insurance Brokers’ Association (BIBA) recommends policyholders maintain clear records of financial losses resulting from delayed claims payments and document any attempts made to mitigate their losses (by, for example, seeking bridge financing) to best position themselves to make a potential claim under the act.
With the good come some new burdens. The act expands a set of obligations captured under a statutorily imposed duty of fair presentation. Previously, it had applied only to brokers, but it now applies directly to insureds as well. It is crucial to understand that violation of this duty can result in rescission or reformation of the policy, so ensuring compliance is essential.
The goal of the duty of fair presentation appears to be equivalent to the original intent of contingent commissions in the U.S.: to require or incentivize (i.e., contingent commissions) sharing relevant information so the underwriter can fairly assess the risk presented.
Under the duty of fair presentation, customers are obligated to present information to the insurer relevant to the exposures they are seeking to insure against. The duty includes an obligation to conduct a “reasonable search” and to present information in a “clear and accessible” form.
To satisfy this “reasonable search” component, BIBA advises a customer to:
- Identify and verify any information relevant to the insurance being sought
- Ask all senior management with relevant knowledge and anyone involved in the insurance procurement process (including brokers) to identify any potentially relevant information and
- Ask anyone doing business with or on behalf of the business (including external consultants, contractors and anyone insured by the policy) to identify whether they have any such relevant information.
Regarding the “clear and accessible” format requirement, BIBA notes large amounts of data provided in an unstructured format (so called “data dumps”) do not satisfy this obligation. Any unusual activities or known areas of potential concern for the insured must be adequately highlighted.
So what’s a broker to do? The primary role of a U.S. broker who directs a client to the London markets (and/or has clients accessing those markets) is to advise them of these obligations. Because this is an obligation to disclose relevant information not explicitly requested on an insurance application, at some level it is counter to the way U.S. brokers are accustomed to doing business. Ensuring your clients understand the expanded information expectations in the U.K. thus may be critical.
BIBA also recommends clients seeking coverage in the London markets institute procedures designed to facilitate compliance with these expanded obligations, including policies to:
- Clearly understand the risks being insured
- Document the process of compiling and checking risk information (including recording who is involved and any potential process shortcomings)
- Document whom the client is treating as “senior management” (and why) and who may have relevant information (both internally and externally) and
- Clarify internal sign-off/approval processes.
From a broker’s perspective, the act provides new tools that should help you more constructively engage in the underwriting policy on behalf of your clients and better advocate for quick claims resolutions. Ensuring clients are fully cognizant of their new rights and obligations may be most essential though. As they say when I check in at the Holiday Inn, the best surprise is no surprise.