The Law Commissions’ proposed changes in insurance law will be welcomed as a means to correct perceived bias, says Ken McKenzie.
When the Law Commission launched a consultation on its insurance reform proposals, Davies Arnold Cooper surveyed market participants about the ideas. Responses came in from 41 UK-based and global companies operating in the London insurance market – companies with a combined annual revenue of more than $60bn.
80% of respondents are in favour of reform in principle and two thirds expressly agree with the reforms proposed by the Law Commission as part of their paper, Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured. By far the biggest driver of insurance law reform is seen as the need to eliminate the perceived bias English law has in favour of insurers – an area in need of complete modernisation.
The common international industry perspective that UK insurance law favours the insurer stems in part from the extent of the duty of disclosure on those applying for insurance and the consequences for the policyholder in getting it wrong. DAC’s survey showed that 60% of respondents believe there is a perceived bias.
A key proposal would shift the appreciation of the relevance and materiality of the facts requiring to be disclosed to underpin an insurance policy away from the underwriter to that of an insured.
This shift would mean that underwriters would in future be unable to rely on the insured to provide information about which no specific enquiry has been made. Interestingly, the survey reveals the proposals will change more than just the documentation discipline: most (70%) believe it will make it harder for insurers to accept irregular risks. However, despite this, 75% agree that the duty of disclosure is in need of reform, and of those, 60% agree with the proposed reforms in this area. 73% of the respondents think that it is inevitable that underwriting practices will change as a result of this proposed change in the law.