The Insurance Act 2015 - Modernising UK Insurance Law

The English and Scottish Law Commissions have, over the past several years, been conducting detailed consultations with a view to updating the legislation that applies to insurance contracts subject to UK law.

In 2012 the first of two acts was passed, the Consumer Insurance (Disclosure and Representations) Act 2012. This came into effect in April 2013 and made changes to the rules that govern the disclosures and representations that must be made by consumers when they buy insurance.

The second act proposed by the Law Commissions, which deals with business insurance (and some matters which affect all contracts of insurance) received royal assent on 12 February 2015. The Insurance Act 2015 (the new Act) applies to both insurance and reinsurance. To allow the industry to prepare for the changes the new rules are only expected to come into force in August 2016. The new Act is an effort to give the UK a modern insurance law, which is fairer to the parties and maintains the UK’s position as a leading insurance jurisdiction.

Key changes made by the new Act include:

• A duty by business insureds to make a ‘fair presentation’. While the new approach introduces some new elements, in practice the fair presentation test largely restates the law as it had developed through the courts.
• Changes to the knowledge that the insured and insurer are deemed to have (and therefore which the insured is required to disclose).
• The remedy of avoidance, which allows insurers to avoid policies for non-disclosure/misrepresentation, is replaced, in most cases by proportionate remedies, based on what the insurer would have done had it been provided with all the information.
• Basis of Contract clauses are now abolished.
• Breach of a warranty only suspends liability until the breach is remedied.
• Warranties and similar clauses cannot be relied on where the term is not connected to the actual loss.
• The law is updated in relation to fraudulent claims to make it clear that insurers are not liable for fraudulent claims and can terminate the policy, without having to return the premium.

With the exception of Basis of Contract clauses it is generally possible to contract out of the provisions of the new Act provided certain transparency requirements are met to ensure the change is brought to the attention of the insured. Contracting out, however, is not possible in the case of contracts with consumers.

In many respects the new law represents best practice already followed by insurers.  Nevertheless the changes are significant and will require underwriters and insureds' representatives to develop new processes and wordings to take account of the rules.

Detailed guidance on the new Act is currently being prepared by the LMA and the IUA in association with Ince & Co, Clyde & Co and Cooley LLP, and counsel from 7KBW. The guidance will be available from April/May along with a series of seminars addressed to managing agents, details of which can be found in the LMA's Events webpage.