LEGAL

The Insurance Act 2015: a summary

What is the Insurance Act 2015?

The Insurance Act 2015 is new legislation that came into effect on 12 August 2016. It makes some important changes to your relationship with your insurer, including rules regarding when your insurer is allowed to reject a claim. It’s designed to make insurance clearer and fairer.

The Act itself is pretty technical, so we’ve explained three of the key elements here in plain English. For full details and the legal wording please refer to your policy wording, which forms part of the terms and conditions of your insurance policy.

1. Warranties and conditions precedent

Background

‘Warranties’ are pre-contractual promises that you give to your insurer in order for your insurance policy to remain valid.

A ‘condition precedent’ means that the validity of your insurance is dependent upon something.

Changes to warranties and conditions

Previously, if you breached a policy warranty at any time during the year you were insured, your insurer could use this as a reason for ‘avoiding’ your policy entirely from the date of the breach. ‘Avoiding’ is a technical term for cancelling your policy from its inception date, and treating it as if it had never existed.

Now, if you breach a warranty (e.g. you don’t do something that you’ve told the insurer you will do, like setting an alarm when you leave the property unattended), your cover is only suspended during the time of the breach. If you change things so that you’re compliant, your insurer can’t use the breach as a reason for refusing claims made once you’re compliant again.

And if you breach another term of your policy, such as a ‘condition precedent to liability’, as long as you can prove that your non-compliance didn’t increase the risk of the loss, the insurer can’t rely on this as a reason for denying your claim.

Example

You buy your business buildings insurance policy online, and due to the amount of contents you want to insure, the insurer states that you must have an alarm in operation when the premises is left unattended. The presence of a burglar alarm is now a ‘condition precedent to liability’ and it’s stated on your insurance contract.

A few months later, your business premises is damaged by flooding, and you make a claim on your business buildings insurance. The burglar alarm you have often doesn’t work properly, and you need to get it fixed. At the time of the loss, the alarm wasn’t properly set.

An intruder alarm wouldn’t have made any difference to the flooding, so your insurer can’t use this as a reason for refusing to pay your claim.

Important: If you’d been the victim of a burglary, your insurer could still use your lack of a fully-functioning alarm system as a reason for refusing your claim, so it’s essential that you provide accurate information when you’re buying your insurance.

2. Fraudulent claims

The Insurance Act has also made the rules for dealing with fraudulent insurance claims clearer.

The Act states that if a fraudulent claim is made, your insurer:

• is not liable to pay the claim
• can claim back from you any money they’ve already paid out for the fraudulent claim
• can treat the policy as terminated from the date of the fraudulent act, without refunding any of your premium

But, following the Act, your insurer can’t simply avoid the whole insurance policy. This means that any valid claims you’d made before the fraudulent claim are unaffected, and your insurer is still liable to pay them.

3. Fair presentation of risk

The ‘duty of fair presentation of risk’ helps to define the kind of information that you must give to your insurer when you’re buying, changing or renewing your insurance policy, and the actions that your insurer can take if you fail to tell them something important.

What you need to tell your insurer

Policyholders have always been obliged to be open and honest with their insurer, but the Act clarifies what this actually means.

For example, you must tell your insurer about any ‘material circumstances’ relevant to your insurance cover that you know or you should have known. A ‘material circumstance’ is something that could influence the decision the insurer makes about whether to offer you a policy and what terms and conditions to apply. This will include informing your insurer about any special or unusual facts relating to the risk, and any particular concerns that have led to you looking for insurance to cover this risk.

What happens if you fail to make a 'fair presentation of risk'?

If you don’t make a ‘fair presentation of risk’, the Act requires insurers to take action that’s proportionate, rather than having a ‘one size fits all’ approach. This is a summary of the guidelines it provides:

• If you’ve failed to make a fair presentation of risk deliberately or recklessly, your insurer can void your policy (treat it as if it never existed) and keep your premium
• If you didn’t do it deliberately or recklessly but your insurer wouldn’t have insured you if they’d had the full facts, they can void your policy but they must refund your premium
• If it wasn’t deliberate or reckless and your insurer still would have insured you but on different terms (for example different terms and conditions, premiums, excesses, endorsements or conditions) then any claim payment can be reduced (see point 3 under fair presentation of risk condition in your policy Endorsement), and/or your policy can be treated as if it had included those terms

Please see your policy documents for full details.