What Is The Insurance Act 2015?
The Insurance Act 2015 is a legislation that came into effect on 12th August 2016. The act is designed to make insurance clearer and fairer by clarifying rules relating to your relationship with your insurer, including when your insurer is allowed to reject a claim. The Act itself however can be slightly hard to understand due to the technicality of it. We have therefore explained three of the key elements below.
Warranties and Conditions Precedent
A ‘warranty’ in an insurance policy is a promise by the insured party that statements affecting the validity of the contract are true. Most insurance contracts require the insured to make certain warranties.
A ‘condition precedent’ means that the validity of your insurance is dependent upon something.
Changes to Warranties and Conditions
Prior to this act, if you breached a policy warranty at any time during the year you were insured, your insurer could use this as a reason to ‘avoid’ your policy entirely from the date of the breach. ‘Avoiding’ is a technical term for cancelling your policy from its inception date and treating it as if it had never existed.
A ‘breach of warranty’ is if you do not do something that you have told the insurer you will do. An example of this could be setting your house alarm when you leave your property unattended.
Now, if you breach a warranty your cover is only suspended during the time of the breach. If you change your actions so that you are compliant, your insurer can’t use the breach as a reason for refusing claims made once you’re compliant again.
Further to this, if you breach another term of your policy, such as a ‘condition precedent to liability’, as long as you can prove that your non-compliance didn’t increase the risk of the loss, the insurer can’t rely on this as a reason for denying your claim.
You arrange buildings insurance, and due to the amount of contents you want to insure, the insurer states that you must have an alarm in operation when the premises are left unattended. The presence of a burglar alarm is now a ‘condition precedent to liability’ and it’s stated on your insurance policy.
A few months later, your business premises are damaged by flooding, and you make a claim on your business buildings insurance. The burglar alarm you have often doesn’t work properly, and you need to get it fixed. At the time of the loss, the alarm wasn’t properly set.
An intruder alarm wouldn’t have made any difference to the flooding, so your insurer can’t use this as a reason for refusing to pay your claim.
However, if you’d been the victim of a burglary, your insurer could still use your lack of a fully-functioning alarm system as a reason for refusing your claim. It is therefore essential that you provide accurate information when you’re purchasing your insurance cover.
The Insurance Act has also now made the rules for dealing with fraudulent insurance claims clearer. The Act states that if a fraudulent claim is made, your insurer:
· Is not liable to pay the claim
· Can claim back from you any money they’ve already paid out for the fraudulent claim
· Can treat the policy as terminated from the date of the fraudulent act, without refunding any of your premium
However, following the Act, your insurer can’t simply avoid the whole insurance policy. This means that any valid claims you’d made before the fraudulent claim are unaffected, and your insurer is still liable to pay them.
Fair Presentation of Risk
Before a contract of insurance is entered into, the policyholder must make to the insurer a fair presentation of the risk. The ‘duty of fair presentation of risk’ helps to define the kind of information that you must give to your insurer when you’re buying, changing or renewing your insurance policy and the actions that your insurer can take if you fail to tell them something important.
What Do I Need To Tell My Insurer?
In the past, policyholders have always been obliged to be open and honest with their insurer, however the Act clarifies what this actually means.
You must tell your insurer about any ‘material circumstances’ relevant to your insurance cover that you know, or you should have known.
A ‘material circumstance’ is something that could influence the decision the insurer makes about whether to offer you a policy and what terms and conditions to apply.
This will include informing your insurer about any special or unusual facts relating to the risk, and any particular concerns that have led to you looking for insurance to cover this risk.
What Happens If You Fail To Make A ‘Fair Presentation Of Risk’?
If you don’t make a ‘fair presentation of risk’, the Act requires insurers to take action that’s proportionate, rather than having an all-round approach. Below is a summary of the guidelines it provides:
· If you’ve failed to make a fair presentation of risk deliberately or recklessly, your insurer can void your policy (essentially treat it as if it never existed) and keep your premium
· If you didn’t do it deliberately or recklessly but your insurer wouldn’t have insured you if they’d had the full facts, they can void your policy but they must refund your premium
· If it wasn’t deliberate or reckless and you insurer still would have insured you but on different terms, i.e different terms and conditions, premiums, excesses, endorsements or conditions, then any claim payment can be reduced and/or your policy can be treated as if it had included those terms.
For full details and the legal wording, please refer to your policy wording which forms part of the terms and conditions of your insurance policy. You can also speak to our advisers if you need any further advice.