For the first time in more than a century UK insurance law has been overhauled to bring it up to date with the evolving business landscape. Here Julian Hilton explains the main changes and how they will affect you as a business.

The Insurance Act 2015 brings with it the most comprehensive changes to business insurance I have seen in my years in the insurance industry. The main aim of The Act is to put businesses in a better position than under the existing law, by helping to clarify the information required to be disclosed when taking out new policies or renewing insurance and by requiring insurers to be more pro-active at the placement stage. The other main benefit is that insurers’ remedies for issues such as non-disclosure, misrepresentation and breaches of warranty and similar policy terms will be more just.

The Act, which came into force from August 12 aims to make insurance fairer for policyholders – redressing an imbalance in the previous law that sometimes overly favoured insurers. It affects all insurance policies (written under the laws of England and Wales, Scotland or Northern Ireland) that are started, renewed or altered on or after this date.

The Act updates insurance law in three key areas: disclosure and misrepresentation – what risk information you must present to your insurer, and how; warranties – how breaches of warranty (and other similar policy terms) are dealt with by insurers; and fraudulent claims – what insurers can do if you make a fraudulent claim.

While the changes are broadly speaking good for businesses, you still have to do your bit too. Under the Act, when taking out insurance, a business has a duty to make a ‘fair presentation of the risk’ to the insurer.

This means that as well as not making any misrepresentations, you must disclose every material circumstance that you know or ought to know or, failing that, give the insurer ‘sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal those material circumstances’; and you have a new duty to disclose the information in a manner that is ‘reasonably clear and accessible’, so that it would be easily understood.

In order to make a fair presentation you must disclose material information known by your ‘senior management’ team and by the individuals who are responsible for arranging your insurance. You also have a new duty to carry out a ‘reasonable search’ for relevant information that you ought to know.

Under the Act, rather than the policy being ‘avoided’ for any non-disclosure or misrepresentation (i.e. cancelled from day one and treated it as if it had never existed) insurers will have a new range of ‘proportionate’ remedies. The insurer’s remedy will depend on whether or not the non-disclosure or misrepresentation was deliberate or reckless.

If the non-disclosure was deliberate or reckless, the insurer can still ‘avoid’ the policy and does not have to return the premium.

If the non-disclosure or misrepresentation was not deliberate or reckless, the insurer’s remedy will depend on what it can show it would have done had it received a ‘fair presentation of the risk’. This could still include avoiding the policy (although in these circumstances the insurer would have to return the premium).

The Act defines a ‘reckless’ breach of the duty as one where the insured did not care whether or not it was in breach of that duty. The law treats someone who is reckless or does not care whether a fact is true or not as fraudulent, so when the Act speaks of deliberate or reckless breaches, it is describing an insured that is fraudulent in presenting its risk.

Under the Act, if you breach a warranty, rather than the insurer permanently coming off cover from the date of breach, cover is simply suspended until you have remedied the breach (assuming it can be remedied).

For example: under the Act, if a warranty stipulates that you must install a burglar alarm at your premises within 30 days of the policy starting but you do not install it until 45 days after the policy starts, cover will be suspended between days 31 and 45.

However, under the Act you may have cover for a loss that occurs in that ‘suspended’ period if you can show that the failure to install the alarm could not have increased the risk of the loss that occurred, for example, if you had a flood loss you might have cover if you could show that the failure to install the burglar alarm could not have increased the risk of the loss caused by the flood. However, you will not have cover for a loss where the failure to install the alarm could have increased the risk of the loss (e.g. if you had a burglary).

The Act will be a big change for many businesses but the insurance industry has been gearing up for it for a while so I suggest that anyone who is in any doubt contacts their broker to find out exactly what they need to be doing to comply with their new obligations and also take advantage of the changes.