Insurance companies in the UK are expected to lobby against
the UK Law Commission’s proposed reform
of national insurance rules. But lawyers and insurance
underwriters in the country remain unfazed by the move.
The Law Commission
today launched a market consultation into its proposed update
of national insurance laws for the first time since 1906.
The new regulations would make it more difficult for insurers
to turn down claims by arguing claimants had failed to disclose
information that underwriters might consider relevant.
The shake-up comes as corporate insurance buyers warn that
insurers are refusing to pay a greater proportion of
At present the law, which is based on the Marine Insurance
Act of 1906, requires companies to disclose any information
that underwriters might consider relevant, even if insurers do
not request it.
Insurers can repudiate entire claims by arguing clients have
not adequately disclosed information or have breached other
conditions. And in recent years insurers have become more
aggressive in enforcing their legal rights.
In a statement released today, the Law Commission branded
the current legal regime as unclear and harsh. "If a business
breaches the duty of disclosure, an insurer can avoid the
contract," it read. "That means it can act as if the contract
does not exist and refuse to pay any claims. The consequences
for the business and its employees may be catastrophic."
Market participants expect insurance companies will lobby
against any attempt to change the status quo, however.
One insurance and reinsurance partner based in the city said
the legal regime had always been weighted in favour of
insurance companies, to the detriment of the market. "Change
will not be good for the insurers," he said. "They will likely
try to fight this."
Scottish Law Commissioner, Professor Hector MacQueen, agreed
the present rules and remedies were weighted against large,
complex, international corporations as much as their smaller
"We are offering the industry and its business policyholders
an opportunity to come together to develop definitions,
principles and protocols that make for clearer, fairer law," he
Herbert Smith's Alexander Oddy said the Law Commission's move to seek
further public consultation on the changes was unusual. "It is
important that policyholders as well as insurers and insurance
brokers take the opportunity to shape a process which Law
Commissioner David Hertzell this morning described as shaped as
much by policy as the law," he said.
"The Law Commissions'
proposals in relation to the duty of disclosure and warranties
in insurance contracts will, if carried through to legislation,
redress substantially in favour of policyholders a number of
the features of insurance law which are widely regarded as
unduly harsh and favourable to insurers," he
Nonetheless, other market participants did not expect to be
much affected by any of the mooted reforms.
One London-based insurance underwriter said the changes were
primarily aimed at small to medium companies without the
know-how or access to legal advise that the
country’s larger financial institutions had.
"The law change will definitely benefit corporate clients as
it will give greater clarity, but I would argue that
sophisticated buyers would be aware of the limitations of their
insurance policy already," he said.
"For the larger financial institutions any discrepancies
will always go to arbitration so the process therefore becomes
much more transparent," he said.
Hertzell, the Law Commissioner leading on the project for
England and Wales, said many of the definitions and principles
the Commission were proposing were already found in the current
case law. But he said embedding them in the statute would make
the law clearer and fairer for insurers and their clients.
The Association of British
Insurers’ Financial Conduct Regulation
director, Maggie Craig, said potential legislative reform of
business insurance required careful consideration. "It may have
significant ramifications for the way that insurers conduct
their business," she said. "We will consider these proposals
The consultation period on the changes proposed will end
September 26 2012.