Brokers not fully prepared for the introduction of the Insurance Act
The Insurance Act 2015 will bring a period of “chaos and muddle” to the insurance market.
Overall, the industry welcomes the act, which came into force on Friday, 12 August.
But customers, risk managers, insurers and brokers will have to “bear with each other” because of the scale of the changes entailed, says QBE European Operations chief executive Richard Pryce.
“It is a positive outcome. But none of us should underestimate how it will change what we will do,” Pryce says.
And with the introduction of the new Solvency II regime dominating the industry for the past year, not enough has been done to prepare for the new act, writes sister publication Insurance Times.
BT Group insurance and risk financing director Tracey Skinner says: “From a buyer’s perspective in the 12 months running to this act, it feels as if there has been a pause and no action in terms of engagement with us to work out what we are doing going forward.”
“There will be a bit of a muddle and it will be a bit of a chaotic market at first.”
The act will put more onus for information disclosure on brokers and clients.
Broker Yutree managing director Kevin Hancock says it could take a series of legal battles before the industry agrees a standard interpretation.
“The act is fundamentally a good thing. It increases fairness for the insurer and the clients. The weakness is that it is going to take a series of precedents, where there is a dispute between the insurer, broker and insured, to understand it,” Hancock says.
“It will also take a bit of time for the courts to demonstrate their interpretation of the act.”
According to broker Lockyers boss Jon Newall, brokers will have to dig deeper to understand their clients better, but he says it will force some of the unprofessional brokers out of the industry.
He adds: “The act is squarely putting the broker in a much more liable position. But it is a way for us to prove our professionalism to clients by explaining that there is legislation that supports our request for information.”
Aston Scott executive chairman Peter Blanc said brokers will have to find creative ways to get customers to engage with them.
Ryan Direct Group compliance and central services director Richard McKenzie adds: “We all now have clarity but the onus is on the insurer and the broker to ensure that all questions are asked, and that answers are satisfactory.
“This should make claims handling easier, removing underwriting and policy validity issues from the claim.”
The pressure on brokers to obtain information from clients will differ depending on the size of the business, insurance experts have said.
QBE’s Pryce says that while larger business clients will be better prepared for the act, smaller UK organisations will struggle and become “incredibly” reliant on brokers.
However, at risk manager association Airmic’s recent conference debate, when risk managers and insurance buyers were asked how ready they were for the act, there was a mixed response.
Airmic’s members typically represent larger businesses.
Pryce says: “I am surprised at some of the concerns at the Airmic level. I would have thought that every Airmic member has had conversations with their partners.
“The biggest problem in the UK is going to be the rest of the firms, because there are thousands of insureds who do not have the professional advice and are not as well equipped.”
The panel was also split on how ready the industry was for the changes. According to XL Catlin executive vice-president Paul Jardine, the lack of overall preparedness had been driven by the FCA’s focus on the consumer and SME sectors and the pressures of dealing with Solvency II.
But brokers have been working to get their staff ready.
JLT has been training staff and has been redrafting the Lloyd’s Market Association clauses and working with clients to understand where areas of dispute are likely to be.
Deputy chief executive Mark Drummond Brady says: “We need to move quickly to establish a market practice around some of these areas, like the knowledge of senior managements and what constitutes a reasonable search. These are serious issues”
Aon Risk Solutions UK chief executive Andrew Tunnicliffe adds: “Don’t underestimate the dialogue that has been going on between the brokers in the market on this.”
What the brokers say
“Brokers have to be credit checking and digging into their clients more. It is about knowing clients.
“I have had cases recently where staff have said to me they don’t feel the client is telling them the full story and I tell them to walk away from it.
“The change will force uncomfortable conversations with clients.”
Lockyers principal Jon Newall
“There will be a period of settling down. The great thing is the act now allows retrospective underwriting, which means if someone has unwittingly mis-disclosed something the insurer can take a view on it and apply a proportionate response rather than cancel the policy or claim completely.”
Yutree managing director Kevin Hancock
What the insurers say
“What we have done is change the way we operate. We have gone through mandatory training.
“All of our wordings will be ready in time and we have made it clear to people what the responsibilities are.
“I don’t think the industry is fully ready because of the amount of work that needs to be done. But we have to bear with each other because the size of change is significant and we should engage to see what each other wants.”
QBE European operations chief executive Richard Pryce
“There has been a workload that has consumed the carrier and change can be painful if you have a long way to go from where you start.
“We have 45,000 open claims. In the last three years in that community of claims, we have had four disputes, not necessarily going to arbitration on non-disclosure and eight on breach of warranty.As an organisation, if you are good at what you have less of a journey to get to the new world.”
XL Catlin group chief experience officer Paul Jardine