The following article relates to insurance sold to a 'commercial' client'. FCA regulation defines a commercial client as one purchasing insurance for the purposes of a trade or profession. This would include vehicle insurance where the purpose of the vehicle is predominately work related or insurance on a Buy To Let property (rather than a Consumer BTL).
The Insurance Act 2015 comes into force from 12th August 2016. Previously commercial customers had a 'duty to disclose' information. From 12th August this will be replaced with a 'duty of fair presentation' which will not only apply when taking out an insurance contract but also at renewal or if any mid term adjustments are made.
What is 'fair presentation'?
Until the Courts start to pass judgment on cases brought under the new legislation then this will be open to interpretation, however the definitions and guidance provided with the Act state that:
- The Insured would need to disclosure every material fact which they know or ought to know when asked, or failing that, disclose sufficient information so that the Insurer can make further enquiries. In addition an insurance broker would also need to notify the Insurer of any knowledge they have on the matter, which the Insured had not themselves disclosed.
- All disclosures must be 'reasonably clear and accessible to a prudent Insurer'. This means that information provided must not be done so in an ambiguous way or concealed in large volumes of less relevant information.
- Every material representations must be substantially correct and expectations or beliefs are made in good faith.
Fair presentation then, is disclosure of every material circumstance which is known, or ought to be known, by the policyholder's senior management, or those responsible for arranging the insurance following a reasonable search. Special care is required where you deal with someone other than the policyholder or their senior representatives. There is no specific limitation on what constitutes a material circumstance but examples include prior claims, customers financial history, convictions of key personnel and the business.
It is not necessary to disclose matters which the Insurer is already aware of or is deemed to be aware of, such as claims information that is held by their claims department. However, if you are ever unsure then we would suggest you disclose all matters just in case.
Where you already provide the Insurer with all material facts so there should be few changes to the way you do business. However, you should be aware of the terminology changes and remove any references to 'Duty to Disclose' in your Term of Business or Statements of Demands and Needs or similar documents.