The Insurance Act introduces a more policyholder friendly approach to commercial insurance and brings commercial insurance law up to date (the current law is based on the Marine Insurance Act 1906). It changes the way in which insurance is underwritten by insurers and reduces the obligations presently found in commercial policies – but it also introduces a responsibility onto the policy holder to disclose necessary information for insurers.
Whilst the Act covers all commercial and corporate insurances, smaller companies are at more risk of being unaware of the changes and their implciations for their businesses. Under the act, businesses need to make a 'fair presentation of the risk' to an insurer before taking out the policy – insurers will no longer be able to avoid paying a claim for breach of the duty of utmost good faith. However, commercial policyholders must disclose any material risk that you are aware of (or should be aware of) when taking out the policy – it is really important that you do this fully otherwise any claims may be rejected. What an insured 'ought to know' will be assessed objectively i.e. what should reasonably be revealed by a reasonable search of information available to the policyholder. The onus is then on the insurer to ask additional questions following presentation of the risk. This represents a significant change from the existing law and is intended to ensure that the insurer takes a more pro-active approach to the disclosure process – the insurer has to make further enquiries based on the information provided. Rather than the policyholder having to second guess what the insurer wants to know/ thinks is important, the insurer now has to identify and follow this up themselves.
The Act also specifies that (from May 2017) the insuer must pay any sums due in respect of the claim within a reasonable time – great news for small businesses at a time of business stress!
Insurances typically held by small businesses include;
- Public liability – cover if you or an employee accidentally injures someone or causes damage to their property. Often clients require this cover to get on their roster
- Product liability insurance – similar to public liability, this cover is specificially where a product that you have supplied cuases injury or damage
- Professional indemnisty insurance – designed to protect people who give professional advice to clients, the policy will cover you if your client suffers a financial loss becuase of a mistake that you make in your work
- Employers' liability – this provides cover for any claims made by a member of staff for injury or illness that has resulted from their work or has been caused by their workplace. This is the only type of business insurance that is required by law, and has a minimum liability limit of £5m. The only exception is if you are the business owners and/ or only employ close family members