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UK to overhaul insurance system

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Prime Minister David Cameron speaks after unveiling the  portrait of  Baroness Thatcher at Saïd Business School in Oxford
Prime Minister David Cameron speaks after unveiling the portrait of Baroness Thatcher at Saïd Business School in Oxford

The British government has introduced the Insurance Bill to Parliament, which will support the growth of Britain’s insurance industry and help customers by updating the 100 year-old rules governing contracts between businesses and insurers.

The new bill introduces a more modern legal regime which will benefit both insurers and their business customers by increasing transparency and certainty over the rules that govern contracts between them and reducing the number of legal disputes over time.

This will mean that British insurers are better equipped to compete against their global competitors, some of whom have already introduced more modern legal regimes for insurance, while businesses are expected to benefit by around £100m over the next ten years, as a result of factors such as lower litigation and transaction costs.

Economic Secretary to the Treasury, Andrea Leadsom said: “Britain’s insurance industry is a major success story, employing over 300,000 people across the country, helping millions of British people and businesses every day and exporting across the globe. We want the industry to continue to grow and provide better services to customers, which is why we need to bring insurance contract law into the 21st century.

“The Insurance Bill that the government is introducing today will ensure that Britain’s insurers can succeed in the future, while business customers can take advantage of lower costs.”

The bill is the product of recommendations made to the government by the Law Commission and the Scottish Law Commission following eight years of consultation with businesses and insurers. HM Treasury informally consulted on the bill in June 2014.

The reforms contained in the Insurance bill cover three main areas:

  • disclosure and misrepresentation in business and other non-consumer insurance contracts. The bill amends the duty on business policyholders to disclose risk information to insurers before entering into an insurance contract, introducing a duty of “fair presentation” of the risk. It also provides the insurer with a number of proportionate remedies for breach of the duty of fair presentation
  • warranties. The bill abolishes “basis of the contract” clauses, which have the effect of converting pre-contractual information supplied to insurers into warranties without further discussion. It also provides that the insurer’s liability should be suspended, rather than discharged, in the event of a breach of warranty, meaning insurance coverage is restored after a breach of warranty has been remedied
  • insurers’ remedies for fraudulent claims. The bill provides the insurer with clear, robust remedies when a policyholder submits a fraudulent claim

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