At a glance
- Since 2006, the Law Commission of England and Wales and the Scottish Law Commission have been engaged in a joint project to reform commercial insurance contract law
- Issues had been raised with the current law as it enabled insurers to take action (such as cancelling the policy from inception for minor non-disclosures or terminating for an un-related breach of a warranty)
- Zurich has implemented the spirit of the Bill with immediate effect as it confirms the company’s approach to dealing with claims for commercial (non-life) customers
Zurich has pro-actively adopted many of the recommendations made to the recent Insurance Bill, but brokers need to consider what the changes will mean for them and their customers.
The changes Zurich will make will also seek to bring commercial policies in line with 21st century business practices, and avoid the problem of companies being unable to claim for a specific damage due to an unrelated breach of the policy terms. For example, a company’s claim for flood damage could be refused because they did not have a fire detection system installed.
The forthcoming Insurance Bill reforms aim to create a level playing field for both insurers and commercial policyholders, by preventing policies from being unfairly cancelled due to non-disclosure or un-related breaches of warranty.
The recommendations are the result of a decade-long project by the Law Commission of England and Wales and the Scottish Law Commission to change 100-year-old laws, interpretation of which has, on occasion, been described as ‘draconian’.
What Insurance Bill changes are Zurich adopting?
Non deliberate or non-reckless non-disclosure/misrepresentation
There remains a responsibility for full disclosure of material circumstances by the customer and this is explained further in the Bill. Prior to the Bill becoming effective, we will be operating with customer agreement as follows:
- Where we would have charged a higher premium, we will charge the insured the additional premium straight away when the non-disclosure or misrepresentation becomes known to Zurich (not offsetting at the claims stage), with customer agreement
- Where we would NOT have written the risk, or we would have written with imposed terms: If we would not have written the cover, we can treat the insurance as if coverage was never attached but must return the premium
- If we would have imposed terms, we can treat this insurance as if it had been entered into on those different terms (from the date of the breach)
Deliberate or reckless non-disclosure/misrepresentation
- Where non-disclosure or misrepresentation is deliberate or reckless, we have the right to avoid the policy and retain the premium
- We aim to remove warranties from our policies and replace with Conditions Precedent to Liability and Conditions
- Whilst we envisage most policies will be ‘warranty free’, we may apply by exception. In these instances we will explain the rationale to you
- This will be removed from our wordings as such clauses are being abolished
For brokers and their customers, the reforms herald a new era of increased clarity and peace of mind for their relationships with insurers, as risk is presented, and dealt with, in a much fairer manner.
Fair presentation of risk
It is hoped that the reforms will clarify and provide a more neutral presentation of risk between insurer and insured.
“The reforms won’t signal a radical change for brokers,” says Adrian Hurst, Head of Strategic Projects at Zurich Financial Services. “Instead, they are about an underlining belief in what services insurers should be providing, and improving industry-wide credibility.
Zurich’s decision to go first
While the reforms are still being considered by parliament the company has implemented the spirit of the Bill with immediate effect.
“At Zurich, we have always believed in doing the right thing by our customers, so these reforms tap right into our DNA,” says Adrian. “We have always prided ourselves on going the distance to help our customers and providing fair claims settlements, which is why we adopted the main elements of the reforms in early November 2014.
“We have found that brokers want an insurer who is firmly committed to the market. That is why we made the early commitment and have already started planning the updates to our policies to accommodate these changes in 2015 instead of just talking about it.
“The response from brokers has been fantastic, as many have said, ‘we always expected you to behave like this anyway!’”