Duty of fair presentationDisclosure of circumstance and risk factors remains central but the new Act will balance information to give a more rounded, realistic and relevant picture of risk. Your insurer will take on partial responsibility for validation and assessment - that’s more work for them – but it also means more work for you and your broker too.

• Your primary duty as the insured still includes disclosure of material facts you know or ought to know or could reasonably uncover.

• The duty of fair presentation demands full disclosure. While the Act compels insurers to share a greater responsibility for drilling down into that presentation, your responsibility for full disclosure in the first instance remains undiluted.

• The Act defines ‘knowledge’ as including senior management knowledge, the insurance buyer’s knowledge and other information held elsewhere in your organisation or amongst relevant third parties that could be reasonably revealed by a ‘reasonable search’. This will demand more planning, more process and more preparation time by you - and us as your broker.

• The information you disclose must be presented to your insurer

in a way that gives a clear indication of risk and circumstance to a prudent insurer. As your broker, we are on hand to assess whether your submissions are reasonably clear and accessible to underwriters.

• Where you have had a relationship with an insurer for a while so that it already holds information that relates to your insurance cover, the Act recognises that the insurer will be taken already to know some of that information, particularly where it is readily available to the underwriter. With a new insurer however, it’s important to give them a detailed submission but one that still recognises they ought to know matters of common knowledge.

THE INSURANCE ACT 2015: MAIN CHANGES AT A GLANCE …

THE INSURANCE ACT 2015: MAIN CHANGES AT-A-GLANCE …

But how might these changes pan out in practice?

• The reduction of the claim in proportion to the undercharging of premium could be very significant in some cases.

• While the changes might help stop the complete avoidance of policies by insurers, it gives an insurer the ability to underwrite a risk retrospectively. This means you have less certainty around what will happen in the event of a claim if there has been a non-disclosure.

• Insurers still have the ability to void a policy - for instance if they can show they would not have taken it on had they known the full facts - but also have the ability to exclude certain risks, increase the premium or impose large deductibles. This may still allow them the latitude to reject a claim.

Unpicking warranties in practice …Basis of Contract Clauses will be outlawed by the Act - so words along the lines of ‘this proposal forms the basis of and is incorporated into the contract’ can no longer be used.

• Warranties will only apply to the specific circumstances of the loss; so the fact that an intruder alarm is inoperative when a policy has an alarm warranty will no longer be a bar to making a flood claim for example.

• However a warranty will also be able to operate in a perhaps unexpectedly lateral way. What happens if a policy has an alarm warranty and the alarm is inoperative, an intruder gets in but sets the place on fire? The insurer could still argue that the breach of the warranty has contributed to the loss.

Warranties will become ‘suspensive’ conditions under the new Act …

• This means that while an insured is in breach then there is no cover for losses resulting from that particular breach.

• But once it is remedied then cover is reinstated from the date the breach is addressed - unlike under the Marine Insurance Act 1906 where a warranty cannot be remedied.

Five key questions to ask as you start the planning process …Don’t assume your insurers have everything they need; again, we’re here to help make sure all your risk bases are covered. Work with us to answer the following questions:

• Are we providing enough detail? Are we providing the right detail?

• Have we indentified the right people in the insurance procurement chain responsible for – or who have access to – relevant risk and disclosure information?

• Are we consulting all and appropriate parts of the business where there’s risk?

• How best do we collate and then present the information for a clearly signposted fair and relevant presentation come renewal time?

• How do we demonstrate that we have run reasonable searches – and that those searches are authorised at the appropriate level?

The new insurer remedies for breach of disclosure have changed significantly …The Act makes the following provisions:

• Deliberate or reckless breach: the insurer can walk away from the policy and keep premiums from the policy inception – but ONLY if it can prove a deliberate or reckless breach of fair presentation. The onus lies with your insurer, not you.

• Non-deliberate or non-reckless breach: there will be multiple remedies available but the responsibility lies with your insurer to show how they would have behaved if they had known all of the material information.

• Insurer would not have written risk: if the insurer would not have written the risk, the insurer can void the policy but MUST refund all premiums from inception.

• Higher premium originally chargeable based on the breach data: if the insurer would have charged a higher premium, the insurer can then reduce any claim settlement accordingly.

• Application of new or different terms (eg conditions and exclusions, not premiums): if the insurer would have included new terms, or imposed different terms, the extra terms can be applied retroactively and the policy honoured under those new terms.

Our message? A good broker must be mindful to these new shifts and put you in a position to navigate them successfully. At Arthur J. Gallagher, we are – and we can.

THE INSURANCE ACT 2015: MAIN CHANGES AT-A-GLANCE …

The final countdown: your steps to renewal …The Act applies to all renewals from 12th August onwards, but the duty of fair presentation under the Act also applies to the mid-term alteration (MTA) after that date. An MTA may be for something as simple as replacing a vehicle in a motor fleet or adding a new piece of machinery to a property policy. Approximately four to five months preparation time should be sufficient but as you can see below, the activity is heavily front-loaded. Make sure you discuss things in-house and start talking to us now to make sure you’re ready …

Four to five months out …• Working with us, map your insurance needs for each area of your

organisation by risk type – for example professional indemnity, public liability, employer’s liability, business interruption and so forth.

• Agree the insurance priorities with your broker so you’ve got the time to assemble information and handle the inevitable questions from your insurer.

• Select the senior managers who will collate exposures and loss data for full disclosure.

• Select the individuals and third parties with whom they must talk for ‘reasonable search’.

• Design and document this process – don’t forget to allow for how long it will later take to audit and embed it

• Done once, it will make things much easier for you next time round.

Three months out …

• We will help make sure your insurer is crystal clear about your insurance needs.

• Complete the information request from us.• Check your disclosure presentations are relevant, intuitive and

well ordered. • We’ll explain how your insurer is approaching the requirements

of the duty of fair presentation - and then make sure your documentation fits the bill.

• Some insurers are considering going early with contract and warranty compliance: your broker should double-check.

• Then work through your key insurance cover needs with us and check that the policies respond appropriately. Thus full disclosure ensures they are fit for purpose.

Two months out …

• We will respond to insurers questions on your submissions. We may need to do this in consultation with you.

One month out – the final checks

• We will review all draft insurance wordings (insurers are altering them for Act compliance) and explain any differences to you – for instance if the insurer is looking to dissapply certain provisions from the Act – this is known as ‘contracting out’.

• Agree the final Ts & Cs between all parties and that you know which (if any) any wordings included have been contracted out of the act.

• Check compliance throughout your organisation with all insurer conditions.

• We will confirm that all policy documentation is accurate and will be issued on time.

This note is not intended to give legal advice and we provide it as guidance for your insurance placement(s). While this is a guidance note, we strongly recommend that you seek specific legal advice where you need further information about the Act. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this note, nor will we be responsible for any loss that may be suffered as a result of any person relying on the information contained herein.

Arthur J. Gallagher Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 7th Floor, 55, Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909.

FP174/2016 exp.14.03.17

Arthur J. Gallagher: we are here to help you …A solid four to five months prep time will give your organisation the time to triangulate the total picture of your risk management under the new legislation. Come and talk to us now: as always with the renewal process the more you involve us, the better prepared you will be, the better the case we will be able to make on your behalf and the greater peace of mind you will have. Under the new legislation, renewals preparation has never been more important.

About Arthur J. GallagherFounded in 1927, Arthur J. Gallagher & Co. has become one of the largest, most successful insurance broking and risk management companies in the world. With extraordinary reach internationally, our parent group employs over 20,000 people and provides services in more than 140 countries. Outside the US we are known as Arthur J. Gallagher and wherever there is an issue of risk, we’re there for our clients. We are a business without barriers – working together to create solutions that drive value and competitive advantage for our clients. Our people, our depth of technical knowledge and our global reach will deliver unrivalled advice and coverage expertise.

T: 0800 612 2278 E: ukenquiries@ajg.comwww.ajginternational.com

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