Airmic pleased with Law Commission disclosure rule changes

The risk management association told Commercial Risk Europe that the planned changes are pleasing and generally in line with its expectations. It is hopeful that the changes will go before parliament prior to the next UK general election. Despite supporting a raft of the new measures, Airmic remains concerned that under the draft legislation insureds would be still obliged to disclose 'every material circumstance' relating to the presentation of risk. This is an obligation carried over from existing rules laid out in the 1906 Marine Insurance Act and one Airmic was hopeful of removing. Airmic said it will remain in discussion with the Law Commission to address this concern. The Law Commission published its Insurance Contract Law Draft Bill this week and opened a limited consultation on its draft clauses until February 21.hideThe new rules are set to replace the 100-year-old Marine Insurance Act that forms the basis for UK insurance law. The initial draft clauses cover fair presentation (disclosure and representations) in business insurance, damages for late payment of claims, insurers' remedies for fraudulent claims and good faith. Of key interest to Airmic and its members are the proposed changes to duty of disclosure rules. Backed by members, the association has over the last few years campaigned for changes to antiquated rules to clarify the burden of disclosure placed on buyers. Airmic has previously stated that disclosure requirements should be made clearer and proportionate to the size of the company seeking cover. It has argued that a claim should only be declined on grounds of non-disclosure in cases where the application for insurance was made dishonestly or where relevant information was knowingly withheld. It has stressed that potential remedies available to the insurer for non-disclosure are disproportionate and place an undue and sometimes impossible disclosure requirement on the buyer. In the main Airmic's concerns appear to have been addressed in this week's Law Commission proposals. The draft legislation retains the duty of disclosure for businesses, removed for consumers, but within a 'duty of fair presentation'. Airmic Chief Executive John Hurrell told CRE that the association likes this principal. "What we are all looking for-policyholders, brokers and underwriters-is to achieve a fair presentation of the risk," he said. "You simply cannot disclose every single underwriting fact. If you did the underwriter just wouldn't be able to deal with all of that information-so there is a level of practicality that has been recognised in the draft legislation," he added. However, the draft proposals state that a fair presentation of risk requires disclosure of 'every material circumstance' that the prospective policyholder knows or ought to know. This is the only provision in the draft bill causing Airmic concern. The term comes from the original 1906 Marine Act and refers to every material circumstance as deemed by a prudent underwriter with the benefit of hindsight, explained Mr Hurrell. "So if you are in ten countries or more and have five operating divisions you can imagine how many material circumstances there would be. A number of our members and other policy holders have resorted to data dumping on underwriters just to try and make sure that they maximise the chance of declaring to their underwriter every material circumstance. 'Every material circumstance' was the one thing that we said right up front was a high disclosure hurdle for our members," he explained. While Airmic will continue to press the Law Commission on this matter, Mr Hurrell noted there are so many other positives in the legislation for buyers and the market as a whole that the negative consequences of the included term are much reduced. One such change applauded by Airmic is proportionate remedies in cases where duty of disclosure is breached. The legislation would replace the current single remedy for breach of duty with a regime of proportionate remedies based on what the insurer would have done had it received a fair presentation. "Currently the only remedy available to underwriters is the death penalty if you breach disclosure rules, whereas under these proposals the punishment will fit the crime," said Mr Hurrell. "In these proposals the punishment will be proportionate and take into account those that have made every effort to disclose every material circumstance compared to those that clearly have not. So we believe it is a lot better than what has previously existed." Airmic is also pleased that the draft law encourages active engagement by insurers in the disclosure process. It places an obligation on the underwriter to play an active role in seeking information that they wish to develop once they receive a submission from any prospective policyholder. "This is not encouraged in the current law so the underwriter could theoretically just sit back and receive what is clearly an inadequate presentation of the risk, not ask any questions and their position in law would be actually better than if they had asked questions for further information. This is clearly counterintuitive and not in the best interests of the way in which the market operates," said Mr Hurrell. Airmic also backs new rules that attempt to clarify whose knowledge in the buyers' organisation is relevant to duty of disclosure. "We like the fact that the underwriting knowledge is deemed to be that knowledge held by defined people within the organisation, be it the risk manager or secretariat or such like. So it will be defined rather than at the moment being vague whereby it could be interpreted as the knowledge of every single employee. So now it will be based on the knowledge of information of key individuals or departments," explained Airmic's chief executive. The Law Commission said this week that it is still working on draft warranty clauses to be contained within the Insurance Contract Law Draft Bill. Airmic is quietly confident that forthcoming proposals in this area will meet their expectations and will be published shortly. It has been asking for the abolition of basis clauses and that warranties become suspensive rather than total-whereby the warranty applies during the breach and once that is remedied the cover comes back into force. Thirdly Airmic hopes that warranties should only apply where relevant. "We are looking with eager anticipation to see what they are proposing on warranties. We are quite encouraged by their intentions to mirror what they had discussed earlier in the consultation process on warranties," said Mr Hurrell.

Airmic pleased with Law Commission disclosure rule changes

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