Have you heard of the Insurance Act 2015 (the Act)? If not, perhaps you should do some reading before the Act goes into effect on August 12, 2016. The Act makes some pretty profound changes in the way underwriting data must be reported and the responsibilities of the insurer and the insured in the event that the underwriting information, for any reason, is not accurate or complete. As a risk manager outside of the UK, you may not think these regulations will impact you. However there are a number of situations where you and your risk could be effected by provisions of the Act:
- if you have a captive that purchases reinsurance in the London Market (either the Companies market or the Syndicates market)
- if your casualty umbrella program has participation layers in either of the London markets
- if your primary property or casualty program have reinsurance protection purchased through the London markets
- if you purchase marine or aviation insurance
- if you have any kind of large property, casualty or specialty placement for which all or part of the direct or reinsurance program is placed in any of the UK markets
The act has implications for all parties (risk managers, brokers and insurers) and in summary the key consideration for a global risk manager is the change from Duty of Disclosure (DoD) to Duty of Fair Presentation (DoFP):
- A demonstrable “reasonable search” has been made to obtain all relevant and material information prior to presenting this information to the insurance market.
- Material risk information is specifically highlighted to underwriters within the presentation.
- Auditable and documented processes are used and evidenced to an acceptable legal standard.
This duty applies to the INSURED, not the broker or agent, and under this new duty, insureds must provide all information ‘in a manner which would be reasonably clear and accessible to a prudent underwriter’.
What does this mean in practice?
- Data Presentation – Information and data must be presented in a logical and coherent format and material points must be actively highlighted.
- Reasonable Search – Insureds must demonstrate that all relevant information has been provided from anyone, including management, who ‘ought’ to have insight.
- Data Dumping – Insureds cannot dump reams of data as “job done” and neither can the insured hold the brokers responsible for failing to disclose a material fact.
Are you comfortable with your current process and its compliance with the new act?
There are some basic steps to compliance:
- Having all underwriting information housed in a full-scale risk management information system (RMIS).
- Meet with your underwriters and brokers. Agree on a form and substance for agreed Fair Presentation of your risk.
- Structure reports and exhibits in your RMIS that comply with the agreed form and substance.
