Airmic confident ‘tide has turned’ in disclosure debate

The requirements are part of the Marine Insurance Act (1906), the key law covering insurance contracts in England. However, the Law Commission, which reviews and proposes changes to unfair or outdated legislation, has been looking into Insurance Contract Law since January 2006. Last week (April 6, 2013) saw the first concrete results of that review when new contract law for consumer insurance came into effect. The Consumer Insurance (Disclosure and Representations) Act 2012 abolished the duty on consumers to volunteer material facts when applying for, or renewing, an insurance policy. However, the Law Commission continues to review business insurance contract law, having published a consultation paper in June 2012 titled Business Insured's Duty of Disclosure and the Law of Warranties, its third on the subject.hideThe consultation focused on the business insured's duty to give information to an insurer before the inception of a contract. The industry responses to the consultation were summarised in two papers from the Law Commission in March. Airmic said that it is 'greatly encouraged' by the Law Commission's latest publication. The document shows that much of the insurance market has come around to the view that the UK's century-old insurance law needs to be changed, it said. The paper attracted 50 responses, mostly from insurers and trade bodies, but also lawyers, brokers and several consumer groups. Only seven of those who took part thought that the Marine Insurance Act (1906) should not be reformed to clarify the duty of disclosure, while 41 believed it should. Airmic noted that the consensus on the need for change represents a swing in opinion, as previously the impetus has come overwhelmingly from the buyers' side. However, while the industry appears to agree that the situation is not perfect, some insurers are still opposed to fundamental reform, the association said. Those questioning the need for reform were from the London market, including the International Underwriting Association (IUA) and the Lloyd's Market Association (LMA). Echoing other doubting insurers, Swiss Re said in its response: "The key principles of the Act are well established and supported by the flexibility of the judiciary, and the UK remains a very competitive legal market. For this reason, English law is often chosen or business written in the UK even where the insured and insurer have little or no connection to the UK. We do not believe current UK insurance law is having a detrimental effect on the market." Brokers strongly supported the need for reform, with the British Insurance Brokers' Association (BIBA) saying that the changes are necessary to maintain London's pre-eminence in the insurance world. Under the law as it currently stands, an insurer may avoid a claim if the buyer has failed to provide material information even when the information was never requested by the underwriter and may not have affected the terms of the policy. Support for retaining the duty of disclosure was considerable from both buyers and insurers. However, it was felt that insurers should be encouraged to become more active in guiding disclosure by insureds. Most respondents also thought that the concepts of material circumstances and knowledge need to be clarified. Insurers mostly agreed with the Law Commission's proposals on disclosure, although there were concerns from a number of insurers on almost all points. Airmic also expressed concerns for the current law on warranties, calling them unduly strict. Insurers are able to use breaches in warranties to avoid a claim for an unrelated event, which would otherwise be covered under the policy. For example, an insurer could avoid paying a theft claim if the sprinkler system had not been maintained as warranted. The current system relies on insurers to overlook technical breaches and to pay claims where there might be a legal case for refusing to do so. However, Airmic is concerned that this position is being eroded as insurance companies are becoming more compliance-driven. As with disclosure, insurers and buyers were broadly in agreement on the Law Commission's proposals to reform warranties. 36 of the 50 respondents agreed that the laws on insurance warranties should be reformed. As yet there is no certainty that changes will be made. However, the Law Commission expects to publish a report, along with its final recommendations and a draft Bill at the end of this year or early next, according to a spokesperson for the Commission. According to Airmic, the aim is to get a statute passed before the next UK election in 2015. Failing that, new laws are likely to be put back to 2016 or beyond. "In that scenario, [Airmic] would look at alternative ways to protect buyers such as model clauses for insertion into insurance contracts," it said. The Law Commission report can be downloaded at http://lawcommission.justice.gov.uk/areas/insurance-contract-law.htm

Airmic confident ‘tide has turned’ in disclosure debate

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