ECIC on the Insurance Act 2015

ECIC highlights new duties for contractors and insurers as they get set to benefit from the Insurance Act 2015.

With seven months to go until the new Insurance Act of 2015 comes into force – 12^th August 2016 – bringing a radical change to how commercial insurance claims will be treated, ECIC, the specialist insurer for the construction sector, is urging contractors to familiarise themselves with the new law to ensure they understand how they will benefit.

The new legislation puts a greater onus on insurers to analyse the risks they are being asked to accept and to pay claims as long as the risks have been fairly described. By the same token, contractors will need to pro-actively declare all information known or ought to be known by them which could influence an insurer’s view of the risk.

“It would be wise for contractors to start looking at their disclosure processes such as record keeping of individuals responsible for arranging insurance cover along with senior management who should be involved in any disclosures made. This information will support you if you need to make a claim.”

As such a great deal of the new law focuses on what contractors need to disclose when arranging their insurance cover, and in turn what the insurer needs to ask to underwrite the contractor’s business.

Contractors will still be obliged to provide clear and concise information to an insurer to help them assess the risk they represent, but the way claims will be assessed and paid will be very different to the situation today. Currently, if a contractor fails to disclose information when the risk is being calculated, the insurer could use this as a reason to void the policy and avoid a claim completely. With the new Act a scale of proportionate ‘remedies’ will be in place.

For example, if there was an unintentional non-disclosure, the insurer may reduce the amount of the claim settlement in proportion to the premium they would have actually charged had the circumstances been disclosed. If they would have imposed different terms or conditions, they may treat the insurance contract as if those terms had applied from the date of the breach. In circumstances where they would not have written the policy, they may treat the policy as void and the premium returned.

“A contractor who unwittingly fails to disclose relevant information or breaches a warranty will be in a much better position if they need to make a claim,” says Richard Forrest-Smith, Chief Underwriting Officer at ECIC. “However, contractors will still need to understand and confirm the type of risks their business deals with. For some, this will be fairly clear-cut, but where contractors have diversified into new markets it is vital this information is disclosed to the insurer.

“It would be wise for contractors to start looking at their disclosure processes such as record keeping of individuals responsible for arranging insurance cover along with senior management who should be involved in any disclosures made. This information will support you if you need to make a claim.”