Our fifth blog in the Insurance Act 2015 series explains what is meant by “contracting out and the impact this has on your insurance policy. For an overview of the new Act, coming into effect on 12th August 2015, click here.
The changes being introduced by the Insurance Act 2015 are intended to be a “default regime” for commercial insurance. These will be the regulations policy holders can expect their insurers to follow, however, there will be the option for insurers to “contract out” of the new regime.
Contracting out means that the insurer can revert to the old way of working, as long as it is done in a ‘transparent’ manner, and the policy holder is clear about the disadvantages of this way of working.
Business insurers, however, cannot restore the current position simply by inserting a clause into a policy to the effect that the changes in the new Act (when it comes into effect) do not apply. Instead, insurers will need to identify each and every change which they do not intend to apply. They will then have to highlight and specify each opt-out in the policy.
Where insurers do intend to opt out (and therefore include a “disadvantageous term” to the policy holder), they must clearly explain the terms and their effects to the policyholder before the insurance is purchased.
Finally, it will not be possible for business insurers to contract out of the Basis of Contract Clause (see our blog on warranties).
In summary, the new legislation has been designed to benefit insurers in some ways, and policyholders in other ways. These benefits can be waived to allow a return to the old legal system, however such a return needs to be clearly stated to the policyholder.
There’s a lot to take in, and a lot of significant changes, so please do check back through the other blogs in the series.
- What is the Insurance Act 20015?
- What do I have to tell my insurer?
- What are my responsibilities once my insurance cover starts?
- What is the impact of making a Fraudulent Claim?
- What is Contracting Out?
Give us a call or drop us an email at any stage with any questions about the Insurance Act 2015 and how it will impact your organisation. We’ll be happy to answer any questions and ensure that you are confident about the insurance you have in place