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Insurance Act full of potential traps, warn lawyers

By 3rd October 2016No Comments
Author: Ida Axling
Source: Insurance Age | 08 Mar 2016
Categories: BrokerInsurerRegulation
Tags: Government | Legislation | Insurance Act
Lawyers Colin Wynter and Stuart Hill explain the possible pitfalls for brokers ahead of the implementation of the Insurance Act.
The Insurance Act contains potential pitfalls for brokers, Colin Wynter and Stuart Hill, partners at law firm Wynterhill have warned.
Hill told Insurance Age that the Act, which comes into force in August this year, would bring into focus the act of gathering information for disclosure to insurers in a way which is “wholly different from what has gone before”.
“The intent of the Act was to remedy what everyone perceived to be the great injustice that if someone failed to disclose something wholly innocently which the insurer could have dealt with by a minor tweak of the policy wording, the insurer was still able to walk away from the contract entirely,” he explained.
“And anyone can see that that was unfair. In their attempt to deal with that a whole host of different issues have now been raised.”
Wynter and Hill mentioned the new rules regarding duty of fair presentation as a potential trap for brokers, explaining that every policyholder will now have to go through a “reasonable search” before presenting the risk to the insurer.
“The question is going to be, because the Act gives you no guidance, what constitutes a reasonable search,” Hill said.
Wynter added: “What is meant to make things more clear can actually make them more complicated because ‘reasonable’ means nothing or everything. It’s one of those words which can be flexible or it can be devastatingly important.”
The lawyers warned that it was unclear whether the nature of the search would change depending on the size and sophistication of the company and whether it needed to include an electronic document search.
“One of the things that people have trumpeted as an advantage in the Act is this idea that insurers are now put under an obligation to ask questions about incomplete information,” Hill continued.
“The trap within that is if the insureds start relying on that [question asking], insurers will say they didn’t ask the question because the client’s claims presentation wasn’t clear enough. So actually you start moving to a separate breach on top of the breach about the fact that something hasn’t been disclosed.”
Smaller brokers
Insurance Age has previously reported on the regulatory burden on smaller brokers after Craig Tracey, Conservative MP for North Warwickshire said they were being pushed out of the market.
According to Hill, the Insurance Act could add to that burden.
“The smaller brokers who don’t address the challenges within this Act are potentially exposing themselves to claims and the smaller brokers who address themselves to the challenges of this Act are going to find themselves spending a lot of time and effort on it,” he said.
“If that kind of work is driving people out of the market, which one can understand, then this may be problematic.”
In conclusion, Wynter and Hill noted that the most important thing for brokers to do was to make sure they were in a position to explain, in considerable detail, how they went about gathering the information for presentation to underwriters and how they put that presentation together.
“When you look at the language that has been used in this Act it is actually pregnant with the potential for disputes because of the use of concepts such as ‘reasonable’,” Hill stated.
“Insurers will have their lawyers working hard on their wordings and on their claims to ensure that notwithstanding this repositioning of the battlefield they are in as good a position to chase away the claims that they don’t want as they ever have been.”
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Tim Kelly

Tim is a highly qualified Independent Engineer with over 20 years experience as an Engineering Assessor of damaged vehicles.

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