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Government modernises 100 year-old insurance rules

Insurance Bill, which modernises

The government’s Insurance Bill, which modernises 100 year-old rules governing insurance contracts between businesses and insurers, received Royal Assent yesterday (12 February 2015).

The bill will benefit both insurers and their business customers by increasing transparency and certainty over the rules that govern how they do business with each other, reducing the number of legal disputes over time.

As a result, British insurers will be better equipped to compete against their global competitors, some of whom have already introduced more modern legal regimes for insurance, while businesses are expected to benefit by around £100m over the next ten years due to factors such as lower litigation and transaction costs.

Economic Secretary to the Treasury, Andrea Leadsom said yesterday:

Our long term economic plan is all about backing successful sectors like our insurance industry. This industry plays an important role in our economy, providing 300,000 jobs, helping millions of British customers and businesses every day, and exporting across the globe.

But we want to make sure that the industry continues to grow and provide better services to customers, which is why we have brought insurance contract law into the 21st century. The Insurance Bill that has become law today will ensure that Britain’s insurers can succeed in the future and allow business customers to take advantage of lower costs.

John Hurrell, Chief Executive of Airmic, the UK’s risk management trade body, said:

We are delighted to see this important bill complete its passage through Parliament. The provisions of the new Insurance Act bring this country’s insurance contract law for commercial insurance right up to date and fit for the modern world.

We will be encouraging our members to have a dialogue with their brokers and insurers to secure the important benefits of the new legal framework as soon as possible.

James Dalton, Director of General Insurance at the ABI, said:

We welcome the modernisation and rationalisation of insurance contract law, undertaken by the Law Commission and HM Treasury working with the industry and other stakeholders.

The Insurance Bill codifies existing industry best practice to the benefit of customers and has been supported by the ABI and its membership.

Additional information

The bill is the product of recommendations made to the government by the Law Commission and the Scottish Law Commission following eight years of consultation with businesses and insurers. The Treasury informally consulted on the bill in June 2014.

The reforms contained in the Insurance Bill cover three main areas of insurance contract law:

  • disclosure and misrepresentation in business and other non-consumer insurance contracts. The Bill amends the duty on business policyholders to disclose risk information to insurers before entering into an insurance contract, introducing a duty of “fair presentation” of the risk. It also provides the insurer with a number of proportionate remedies when a policyholder breaches the duty
  • warranties and similar terms. The bill abolishes “basis of the contract” clauses, which have the effect of converting pre-contractual information supplied to insurers into warranties. It also provides that the insurer’s liability should be suspended, rather than discharged, in the event of a breach of warranty, meaning insurance coverage is restored after a breach has been remedied. Finally, it provides that breach of a warranty or similar term should not allow an insurer to refuse to pay a claim if the insured shows that the breach was completely irrelevant to the loss which has been suffered.
  • insurers’ remedies for fraudulent claims. The Bill provides the insurer with clear, robust remedies when a policyholder submits a fraudulent claim

The bill also contains provisions to amend the Third Parties (Rights against Insurers) Act 2010. This assists injured parties who have claims against parties which are now defunct, but where insurance was in place to cover such claims. It will make it easier, for example, for mesothelioma sufferers to obtain compensation due from insolvent employers.

The bill has now become an Act of Parliament known as the Insurance Act 2015.

The provisions on insurance contract law will come into force in 18 months, in August 2016.


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