The implementation of the biggest change in insurance law in over 100 years is not expected to affect the credit ratings of UK insurers in the immediate future.
At least one ratings agency – S&P Global Ratings – said the new law that came into force last week will have a neutral impact on insurers in the next 12 to 24 months.
The agency said there was a lead-in period prior to the law’s implementation and some insurers were able to revise their underwriting guidelines and procedures ahead of time.
S&P added that a similar law – Consumer Insurance (Disclosure and Representations) Act – did not have material implications for writers of personal lines after it was introduced.
“We believe that the relatively low implementation costs of the Act, as well as the fact that a similar law was implemented for personal lines in 2013, will mean that rated insurers see a minimal impact on their overall financial risk profiles and credit risk,” S&P said.
The Insurance Act seeks to address an imbalance between policyholder and insurer that has favoured the latter, as claimed by some observers.
“Enterprise risk management frameworks will support underwriters, claims handlers, and all departments involved in information sharing, risk assessments and risk underwriting within each organization,” the agency said.
S&P also said that there is a need to update risk appetite guidelines to clearly set out what risks insurers will accept or decline.
The Insurance Act took effect on August 12 and affected all commercial insurance policies in the UK.
The legislation seeks to address an imbalance between policyholder and insurer, which has favoured insurance companies, according to some observers.
In particular, the new law prevents insurers from refusing to pay claims because of a failure to disclose unrelated facts.
However, the measure also creates additional burdens on commercial policyholders, who are now required to provide full relevant information to their insurers.
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