The Insurance Act, which was announced last year, comes into full force today, making it critical for any public sector organisation that invests in insurance to understand its implications.
The legislation applies to all forms of non-consumer insurance and re-insurance, essentially aiming to hand over more power to the customer to ensure fairer negotiations for all.
While the real impacts of the Insurance Act will only be seen in due course, it is bound to change the way we do business. This is simply because it will have immediate effects on the key areas of business insurance, including disclosure, remedies, warranties and fraudulent claims.
The act, which is considered one of the most important insurance legislations ever, arms public sector organisations with a number of benefits, but also brings with it some challenges:
Take pre-contractual disclosure – public sector organisations now have a new duty of ‘fair presentation’ of risk, obliging them to disclose to the insurer every material circumstance which the organisation “knows or ought to know about”, or alternatively, give the insurer sufficient information to put the cautious insurer on notice, while the organisation buys some time to conduct additional investigation of their own business circumstances, to ultimately ensure that the requirements are met.
For the customer, this can be a positive change as it allows them more time to conduct internal research and enquiries, and present the most accurate information to the insurer. However, while customers were expected to do this type of a thorough check anyway, it was not a legal obligation. Now, public sector organisations needing insurance services must undertake this process, which can cost them quite a bit of time – and not to mention, money.
The change in how warranties are treated is also likely to impact the considerations of public sector organisations when buying insurance. Basically, prior to the changes affecting insurance policies starting today, the rules around a breach of warranty meant that the insurer could cite ‘breach of warranty’, irrespective of whether the breach directly impacted the risk or damage to the insured assets of a public sector organisation, leaving the organisation with no claims or premium. The new Insurance Act, however, protects the organisation by forbidding the insurer to void the policy if the damage caused cannot be linked directly to the conditions outlined in the potential ‘breach of warranty’.
Proportionality is a key element of the new act. Previously, remedies available to insurers have been slightly vague, allowing them to void contracts in the case of a breach, without providing any previous claims. However, these remedies are now more proportional and the insurer can only refuse claims from the time that the contract is terminated, as opposed to voiding the contract in its entirety. That been said, this means that the act makes room for claim payments to drop proportionately as well.
Going forward, the changes to the Insurance Act could prove to be positive for public sector organisations, who procure insurance services for a number of aspects of their ‘business’ – including liability, travel, property, motor and specialist insurances. Keen to achieve efficiencies, whilst providing quality services to all, public sector organisations must keep abreast of these changes, and continue to maintain pace with emerging risks.
Our insurance services framework has always offered customers quick and easy access to procure a wide range of insurance and insurance brokerage services, and this shall not change.
To learn more about how the Insurance Act can impact your organisation and how the insurance services framework can add value, get in touch with YPO today.
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