With seven months to go until the new Insurance Act comes into force, contractors are being urged to familiarise themselves with the coming changes to how commercial insurance claims will be treated.
The new Insurance Act of 2016, which comes into force on 12 August, 2016, will bring with it radical changes to how commercial insurance claims are treated.
The new legislation puts a greater onus on insurers to analyse the risks they are being asked to accept and to pay claims so long as the risks have been fairly described. By the same token, contractors will need to proactively declare all information they can reasonably be expected to know, which may influence an insurer's view of the risk.
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 before they 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. At the moment, 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 put into 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 - in which case the premium would be returned.
Richard Forrest-Smith, chief underwriting officer at specialist construction insurer ECIC, said: "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. 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."