The Insurance Act 2015 applies to all commercial polices placed or varied after 12 August 2016.
As a purchaser of insurance it remains a commercial policyholder’s responsibility to disclose every material circumstance that they know, or ought to know, about the risk. A material circumstance is something that would affect the judgement of an insurer in deciding whether to accept a risk and on what terms.
Through the creation of a new duty, the duty of Fair Presentation, the Act provides clarity around what information a policyholder needs to provide to an insurer and whose knowledge needs to be captured when presenting a risk.
Any information provided must be in a clear and accessible format. Policyholders must not need overload insurers with too much information. Information that is important should be highlighted to ensure it is considered.
Policyholders must ensure that the information provided is substantially correct and every material representation about an expectation or belief is made in good faith. Matters which are suspected must be substantiated; it is not acceptable to deliberately refrain from confirming them or enquiring about them.
What a policyholder is expected to know will depend on the size and complexity of the risk being insured.
When collating the information about a risk, policyholders must involve people who know the risk, can present the risk information and senior personnel who can sign the information off as accurate. Policyholders must include the knowledge of the senior management team, the risk and insurance team and the knowledge held by third parties e.g. accountants, solicitors and the insurance broker.
Policyholders will be expected to make a reasonable search of the information available in order to make a fair presentation of the risk. What is reasonable will vary depending on the size of a business, but information includes information held within an organisation or held by external parties such as those mentioned above.
If a policyholder is unsure that all material circumstances have been disclosed, this must be discussed this with the broker and/or insurer. If put on alert, an insurer will make further enquiries to ensure every material circumstance is revealed and that insurance is provided on the correct terms and for the correct premium.
The duty of fair presentation has been created to ensure fairer outcomes in the event of a claim. However, failure to make a fair presentation of the risk may result in the insurer avoiding the policy and refusing all claims. Depending on the circumstances premiums may not be returned.