Second leading insurer removes basis clauses from UK contracts

Airmic is urging members to lobby risk transfer partners to remove all basis clauses from policies. It said this week that it has been informally approached by other insurers to address buyer concern over what have been described as archaic wordings. However, these discussions have not yet led to public statements of intent. The Lloyd's Market Association, which represents all managing agents, said it supports in principal plans by the UK Law Commission to ban basis clauses, but is yet to fully commit to their removal from Lloyd's contracts. Airmic launched its campaign to have basis of contract clauses removed at its conference last month.hideBasis clauses operate as a warranty that all information given by the insurance buyer at the time of placing insurance is correct, such that any minor factual error will discharge insurers from liability under policy-even if the error is unintentional and not material to the risk. As part of its planned changes to contract law, the UK's Law Commission is proposing that basis clauses be abolished in commercial insurance. Pre-empting changes to the law, which could take some time, Airmic has produced a guide and model wording to counteract the impact of basis clauses. The new guide includes a sample endorsement, drawn up for Airmic by Herbert Smith Freehills LLP, which negates any such clause included in a policy. The endorsement expressly provides that any basis clause in the agreement will be of no effect, making it impossible for insurers to rely on a basis clause to reject claims. But the best solution for buyers is for the clause to be omitted from contracts in the first place, Airmic argues. As reported in Commercial Risk Europe last week, AXA were the first major insurer to express their unconditional support for the initiative. "We will be taking action to ensure that our Property and Casualty contracts do not contain any 'basis clauses', and that any existing clauses are removed," said Paul Lowin, AXA Corporate Solutions Regional Commercial Manager. "For the last two or three years we have actively removed these from our contracts. They no longer apply on our property and casualty policies," he told CRE. ACE followed suit this week with an announcement that it will remove the basis of contract clause from UK wordings issued under its European Group stamp for new and renewed business. "This is an important initiative for us and one that is a direct result of feedback from our customers," said David Robinson, Regional President, UK & Ireland. Through constant dialogue with brokers, clients and Airmic, ACE said it has become aware that buyers are increasingly concerned that incorrect information provided in good faith could invalidate certain aspects of their policies. ACE believes that removing the basis clause is a major step towards allaying these concerns and providing clients with a better and more transparent service. ACE has already removed the clause in certain product lines and, where requested by clients or brokers, on a case-by-case basis in others. Mr Robinson continued: "ACE invests a great deal of time in working with brokers to understand clients' individual needs and we have seen a steady rise in requests for the removal of basis clauses, which we have been happy to accommodate. The next logical step was to stop applying basis of contract clauses for any new or renewing policies going forward." ACE's policy will not apply to marine policies, as they operate using the principle of 'Utmost Good Faith' under the Marine Insurance Act of 1906, the insurer explained. According to Airmic's Chief Executive John Hurrell: "Basis clauses are currently prevalent in the market, and we think they are unfair, unnecessary and not as well understood as they should be." "It's important to stress that this clause does not remove the need for firms to produce honest and accurate proposals when seeking insurance cover and the rules of non-disclosure clearly still apply. It just injects a bit of common sense into the process. The insurers to whom we have spoken are mostly accepting of our initiative," he said in Airmic news this week. Herbert Smith Freehills LLP Partner Alexander Oddy added: "I would urge Airmic members to review their insurance arrangements as any change in law for business insurance is probably still some years away. If their policies are subject to basis clauses, whether through proposal forms or the policy wording itself, they should liaise with their brokers and insurers to discuss removing the clauses at the earliest opportunity."

Second leading insurer removes basis clauses from UK contracts

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