An Overview Of The Insurance Act, 2015 And Its Impact On Underwriting Policy And Practice

Provide a brief context for an insurer or reinsurer, or a division of either, with which you are familiar. For this insurer or reinsurer, or division of either:

• Describe briefly the three most significant recent changes in the legislative and regulatory environment affecting underwriting policy and practice.

• Analyse how these three changes influence underwriting policy and practice.

• Make recommendations, based on your analysis, to improve underwriting policy and practice, whilst remaining compliant with legislative and regulatory requirements.

Duty of Fair and Unbiased Presentation

The Insurance Act, 2015 majorly covers to all the contracts of insurance and variations of the existence of it. The government of the United Kingdom has defined it as the largest change to insurance contract law. The regulatory and legislative provisions dealing with insurance have been subjected to significant changes and alterations. The changes have affected and impacted underwritten policy and practice. This Act highlights the most significant alterations made in this Act. The aforementioned act takes into consideration intimations of the changes for insurers and reinsurers which are practical in nature.

The three most relevant and important changes in the legislative environment that have affected underwriting policy and practice.

The Insurance Act, 2015 introduced a duty of presentation which would be fair and unbiased. The aforementioned provision focused on encouraging regular participation by insurers as well as illustrative known or assumed to be known matters (Merkin, & Gürses, 2015). According to the aforementioned act it can be stated that prior to forming a contract of insurance, the parties must disclose every issue that they are aware of which is expected to have influence on the judgment of an insurer. It is to be said that the disclosure of relevant information to the insurer can help him decide whether to provide insurance against any risk and the terms of insurance. The insured parties must also disclose the adequate information to put an insurer aware of the fact that it should make further enquires about the material circumstances. The Act further stated that insured parties should have knowledge about the matters that could be disclosed by an accountable search of the relevant information available to one of the insured parties (Gupta & Sharma, 2017). The persons having knowledge about the information will be held responsible for their own insurance. Insured organizations will be expected to possess knowledge of the organization’s senior managers or the person responsible for their insurance. Disclosure made must have clarity. It should be made in a reasonable and accessible manner. The materials provided must be substantial facts and the belief must be in good faith (Eggers & Picken, (2017). The insured parties need to check on the disclosure processes to make certain that the ones responsible must reveal all the matters that they know of (Ter Haar, Levine & Laney, 2016). For instance, senior management should be engaged while the disclosures are being made. Measures taken to acquire information from the sources must be kept in record. Insurers will rely on disclosure of information while seeking to exercise remedial methods for non-disclosure (Bernstein, 2016). Insurers should encourage and establish procedures to identify the tie and need of the enquiries. Insurers will have to review information available while deciding whether to accept the terms and risks. Another change which the Insurance Act, 2015 has introduced is that it created a series of balanced remedies that can be applied, depending on the level of the breach and the insurer’s state of mind (Thomas, 2015). This change focuses on the remedies for the breach of duty of pre-contractual disclosure. The insurers can shun the contract and keep the premiums instead. The breach can either be deliberate or reckless even if the insurer has not formed the contract. The insurers can treat the contract differently if any additional exclusions are imposed. The insurer can also decrease the insurance cover to which the insured is entitled based on a proportion. Such remedies will be accessible only if the insurer has not entered into the insurance contract had the breach not occurred. Otherwise, the breach would have happened on various terms (Merkin & Gürses, 2015). To establish the clause of non-disclosure of information, the insurers need to prove how differently they would have acted if the breach had not appeared. Disclosure of underwriting decisions made and other appropriate documents will be needed in addition to the factors considered in those particular cases. Thirdly, there have been changes made to contractual terms and warranties of consumer and non-consumer contracts (Clarke & Soyer, 2016). The Insurance Act, 2015 has banned the basis of contract clauses from non-consumers insurance contracts. A warranty breach will result in insurance cover if it was suspended during the timed of such breach and re-instated once the breach had been fixed (Lin, 2017). Therefore, an insurer will not be able to rely on non-compliance with a warranty or anything related to a loss of any kind if the non-compliance did not increase the risk of loss. For instance, if the policy was to preserve the window locks, that insured party did not comply with, and the flooding caused the loss then the insurer cannot rely on non-compliance of the insured party to avoid liability. Therefore, this will be applied in respect to the terms that define risk as a whole. This Act also introduces a statement of clarity for the remedies of an insurer against fraudulent claims brought forward by policyholders. Insurers will not be liable to pay claims which are fraudulent. He can recover the sums that are paid against such fraudulent claims. A part of the Insurance Act, 2015 has omitted the clause of avoiding the contract as a remedy for breach of the aforementioned duty. It also diminished parts of the legislation which has prescribed this as a remedy. Insurance contracts are based on utmost good faith and clauses and obligations will be interpreted in such a way that will be favorable in compliance with this duty. The consumer and non-consumer contracts should be formed based on utmost good faith. However, it is evident that the Insurance Act, 2015 restricts an insurer to enter into contracts which are out of its provisions in order to place an insured party in a worse situation or condition. Parties belonging to non-consumer insurance contracts will have the same opinion to be less favorable terms than those in the Act. Parties to both consumer and non-consumer contracts will not be able to enter into contracts out of the new prohibition based on the clauses of the contract.

Balanced Remedies for Breaches of Duty of Pre-contractual Disclosure

The Insurance Act, 2015 allows the parties in the insurance market to understand the reforms and make modifications that are mandatory to the business practices or policy documents (Bisco, McCullough, & Nyce, 2017). The Act of 2015 sets out the rules needed to be flexible enough to be applied in different situations and circumstances. Before the Insurance Act of 2015 was introduced, insured parties were required to disclose any kind of circumstances that they knew which would have influence on an insurer in fixing a premium for a risk. The obligation also extended to the insured parties and acted on behalf of the insured parties. In the revised Insurance Act, 2015 it stated that the insured must provide every material risk that may affect the contract prior to it being presented in a comprehendible way. According to the Insurance Act, 2015 insured parties must disclose the risk and circumstances before entering into the contract of insurance. The new reform seems to be more practical and clear as it clarifies all the requirements and contents of the state of the insurance contract. It also helps the insurer to be updated on the sources and sufficient information. Under this act, the disclosures are made clear and substantial facts are represented. Such clarity did not exist previously. However, individuals will be deemed to know about the matters. This Act make the insured parties review their disclosure processes. This reformed provision of the Insurance Act, 2015 has influenced the underwriting policy and practice. It was observed that the new standards prevented the presentation of large volume materials. Insurance Act, 2015 does a disclosure analysis of relevant information that is needed to make sure that whether the disclosure is made clearly. Such amendments and alterations will generally influence the underwriting policy and practice. It can be said that the Insurance Act, 2015 has improved policies and made it easier for both the insurers and the insured. Secondly, the Insurance Act, 2015 had created a range of remedies or solutions that can be applied in case of a breach and the mind state of the insurer (Boyer & Tennyson, 2015). Previously, an insurer had the power to reject all claims under an insurance contract if the clause of duty of pre contractual disclosure was breached and committed by the insured or the broker. The remedies for breach was introduced by the Insurance Act, 2015. The remedy to avoid material non-disclosure was no longer available to an insurer. Instead of this, a set of remedies will be available depending on the insured’s intent for the breach committed. A breach of warranty will not give an automatic remedy to an insurer to avoid the policy. Breaches of warranty will only suspend cover for the time duration of breach. The new act states that the basis of contract clauses has been demolished and will not be possible for representations to be converted into warranties. It also stated any law that is permitting an insurer to avoid a policy based on the duty of good faith. Specific remedies for insurers are also created in this Act. These remedies were set out in relation to fraudulent claims. However, these remedies will be available to the insurers, if it can be established that they would not have entered into the insurance contracts had the breach not occurred, or would have entered into such contract on different other conditions. Therefore, the Insurance Act, 2015 can convince the underwriting policy and practice as it provides a set of remedies which is applicable for the right circumstances (Talesh, 2015). It can be analyzed from the previous act and the new provisions of the Insurance Act, 2015 that the insurance contracts can be easily formed and be beneficial for the insurers and the insured. To establish ground of defense for non-disclosure, insurers need to give evidence as to how they would have acted differently if there was no breach of contract (Chen, 2017).  In the case of Clyde & Co. the Insurance Act, 2015 was applied and the insured and insurers entered into an insurance contract. It will amend the key sections of the Marine Insurance Act, 1906. Insurance Act, 2015 will be more influential on the underwriting policy and practice (Lowry & Rawlings, 2016). Thirdly, the Insurance Act, 2015 had abandoned the basis of contract clauses from non-consumer insurance contracts. Whereas, previously the basis of contract clause could transfer all the representations made at the time of course of a non-consumer insurance contract into contractual warranties (McGee, 2015). If the insurer breaches a warranty, then it would completely discharge him from the liability for all risks covered by the policy from the time the breach had occurred even if the warranty had no amount of risk involved (Bisco, McCullough, & Nyce, 2017). Therefore, instead of discharging the liability, a breach of warranty will result in the cover of insurance being suspended at the time of the breach and once it has been settled. The Act reformed the existing laws of warranties to make sure that a breach of warranty does not result in the termination of a policy and therefore, the insurers cannot claim it for circumstances or situations, which do not affect the mentioned policy. Such reforms will be highly beneficial and influential for the underwriting policy and practice. Commercial Insurance brokers across the UK were convinced and influenced by the reforms of this Act (Schwarcz, 2017). These are the major changes or alterations in which the new legislation will affect the way commercial insurance brokers do their business. Previously, either of the party could have avoided the insurance contract if the other party failed to perform or act in good faith. According to the Insurance Act, 2015 the option to avoid a contract as a remedy of breach of duty and abolished the parts of legislation acting as a remedy. However, it can be observed that the provisions of the Insurance Act, 2015 will be able to convince the underwriting policy and practice. The Insurance Act, 2015 has made some important changes that affected the policy of insurance contract. According to the Thomas Cooper LLP, it stated that if the underwriter has changed then an insured will not be required to disclose the claims made in the previous policy under the same insurance. Hence, it can be said that the new alterations has been the most significant statutory ones of the Insurance Act, 2015 (Baker & Logue, 2017). The case of Insurance contract law has incorporated the new reforms in the cases. Therefore, it can be analyzed that these three significant modifications in the Insurance Act 2015 has influenced the underwriting policy and practice.

Ban on Basis of Contract Clauses from Non-consumer Contracts

The reforms introduced in Insurance Act, 2015 can strike a proper balance of interests between the policyholders and the insurers in a commercial market. It can be recommended that the significant reforms made under the Insurance Act, 2015 needs to be flexible and in high level so that it can be applied across the broad range of the risks being covered. The parties must consider the facts relevantly applicable to some particular risks being insured of the terms and warranties that can arise (Nurullah & Staikouras, 2015). The insurers must improve the understanding of the risks being unwritten. Insured person should look at the information sharing procedures and record keeping rules to comprehend the knowledge they need to have on particular risks (Clarke & Soyer, 2016). If they lack the knowledge, the staff will be given sufficient training. Disclosing the information to both the insured and the insurers will be beneficial in the insurance contract. Insurers should upgrade their risk checks and record keeping books to maintain the necessary proof as to how they can agree to underwrite risk if the undisclosed material circumstances have been raised (Costabel, 2015). Both the insurers and the insured must investigate the facts in intricate detail when breach of warranty arises and how it impacts the losses that may arise later. Underwriting includes examining documents, application forms, bills that act as a proof of the value of the property and insurance maps, which provide relevant information to the certain types of loss and the risks that are applicable in evaluating site inspection reports. Therefore, underwriting policy and practice was influenced with the new provisions of the Insurance Act, 2015. Insurance regulations have a distinctive impact on underwriting. The disclosures made should be provided in transactions where the insurance offered is an product of insurance that is used for personal and household purposes (Lu, 2015). The disclosure provided must state that the related insurance is of a loan and not a deposit. It should not be insured by the FDIC. The disclosure must not be guaranteed by the depository institution or selling insurance on the promises made. An Insurance underwriter works for the insurance company. He must execute his duties wisely by protecting the company by enforcing the underwriting rules and assessing the risks that are based on the understanding (Costabel, 2015). An underwriter has the authority to bend the rules and make exceptions or modify the conditions to make a remedy less risky. They can also decide if the risk is too high or not. Underwriters can also refuse to offer insurance. An underwriter has the ability to decide beyond the guidelines of how the company will react to the risk opportunity. The alterations made in the Insurance Act, 2015 has made the concept and formation of insurance contract easier for the insurers or reinsurer (Surminski, 2015). An insurer underwriter will usually reconsider the risk a new information becomes available. Underwriters are not the only ones in the risk assessment process. Every insurance company has staff professionals in different fields. Generally, underwriters do not involve themselves in treaty work in insurance companies. Large underwriters are not involved in claims adjudication. This was basically to ignore the conflict of interests. He factors used during the underwriting process was based on the type of insurance that is being unwritten. Therefore, the Insurance Act, 2015 can improve the underwriting policy and practice. It has anyway incorporated and altered the previous Insurance Act. The basis of contract has improved and become easier for the parties to enter into it. Even in case of a fraud, an insured party can forfeit the claim and insurers had the option to ignore the entire contract. This was the scenario previously. In the Insurance Act, 2015 it has a clear statement that sets out the solutions for claims brought forward by policyholders. However, the Insurance Act, 2015 has made an effect on the Insurance Companies. It secures an insurer from contracting out of the provisions with the effect of placing an insured party in a worse position. The UK insurance industry is the largest in Europe (Penning-Rowsell, Priest & Johnson, 2014). Importance of insurance has been recognized majorly in UK. The UK insurance market will grow wider and grow economically with the new provisions made in the Insurance Act, 2015. It has codified the developments of 1906 and introduced new legal concepts (Tarr, 2016). The modified Act has introduced new duty to make a fair presentation, provision on warranties and similar terms risk mitigation clause and the set of remedies of fraud. The reforms of Insurance Act, 2015 must apply throughout the UK. The law has the power and ability to keep pace and alter through the developments of new precedents. The new set of remedies helped the insurance industry to overcome the issues (Chen, 2017). The reformed Insurance Act will help the market for consumer insurance develop in a different method to business insurance. Therefore, these major chief alterations in the legislative and regulatory environment have affected the underwriting policy and practice. These will lead to the development of the Insurance Act, 2015. Every insurance company will get accustomed to the new provisions and the changes

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