The following opinion article was written by Laurie Davison, CEO, Adsensa.
(Re)insurers: Can you tell your board what proportion of contracts either written, renewed or amended since August 12, 2016, contain your organisation’s preferred wordings for the Insurance Act?
In 2016 the Lloyd’s Market Association issued model clauses for brokers and underwriters to help address the increased exposure from the new Insurance Act.
The prevailing wisdom remains that everyone should wait for a dispute between two parties over one of these new duties before the market knows where it stands.
In actual fact, the Act has created a new playing field where a carefully worded clause could alter the exposures of either side. Prudent organisations need to understand this.
Many brokers and insurers will have taken legal advice, delivered training and issued guidance to watch out for remedies clauses, critical information (condition precedent) or old style fraud clauses.
There are implications for both sides. But the fundamental questions remain.
Can you tell your board whether your objectives in relation to these new policy conditions will meet your preferred standard or agreed approach to the Act?
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For example, “the duty of fair representation” requires parties to do this based on a ‘reasonable search’.
To help define this duty into contract, the LMA issued new clauses on ‘Definition of Insured’s organisation’ and ‘Knowledge of Senior Management’, because the duty is designed to elicit information which ‘ought’ to be known. The model clause helps contracting parties say precisely ‘who’ this is.
Brokers and underwriters are likely to have very different perspectives, hence my point about what your organisation’s preferred standard should be.
If an underwriter agrees to the broker’s definition of ‘senior management’, they’d better be comfortable with the wording. Brokers will want to limit the people in the ‘ought to know’ list as this will protect their client from having to prove they asked everyone from the CEO to the tea lady when the risk was first presented.
Another example are ‘basis of a contract’ clauses. These have been outlawed to limit the ability of insurers to avoid claims in case of misrepresentation of the facts that are not relevant to the actual loss. On the flip side, insurers may still want to specify that certain things become a condition precedent to their liability, defining the risk as a whole.
So, if your portfolio has, say, 1,000 policies in it, ask yourself, how many fall within the jurisdiction of the
UK Insurance Act? Is it 200? 500? If you need to review your portfolio and validate the state of the wordings present, how would your company achieve this? With technology, or by manually sifting through 1,000 contracts?
If it’s the latter, then maybe a fresh approach should be considered?
The preceding opinion article was written by Laurie Davison, CEO, Adsensa. It does not necessarily reflect the views of Insurance Business.
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