Expert View: Embracing the Insurance Act

The Insurance Act is helping to build customer confidence in the UK insurance sector, by improving the way information is shared between insurers, brokers and customers.

Richard Coleman, Managing Director, Zurich Commercial Broker, explains how Zurich has embraced the Act for the benefit of their customers.

“We have taken a prominent position in our approach to the Act, which has given customers peace of mind and impressed and helped us win new customers.”

At Zurich, for Commercial customers, we have welcomed the Act as a major step forward for our customers.

“However, in some areas our approach has led to misunderstandings. We’re proud of our stance, which is why we want to answer some of the questions we’ve received, in order to make our position clear.”

Is Zurich opting out of the Insurance Act for commercial customers?

No, we are committed to the reforms introduced by the Act. All of our policies will be interpreted in accordance with the provisions of the Act, except, however, when we apply our additional premium (AP) approach, which we have prepared for customers and brokers. Our additional premium approach is an opt-out from the Act, which we believe is for the benefit of our customers.

How can brokers explain the additional premium approach to clients?

Zurich Commercial Broker has only ‘opted out’ of the proportionate reduction of claim remedy. Rather than reducing a claim proportionally, we have instead decided to charge the additional premium that we would have charged if we had known the relevant material facts and pay any claim(s) in full. We have made this decision with our customers’ best interests in mind and believe this is a significant benefit for existing and potential customers and something brokers should bring to clients’ attention.

Charging additional premium is not a remedy available to insurers under the Act – hence we need to ‘opt out’ of this specific remedy. By way of a claims example:

• If the proportionate reduction in claim remedy was applied to a £5,000,000 claim, where the premium underpayment was £10,000 (representing 50% of the insured premium), the insured’s claim would be reduced by 50% (i.e. £2,500,000). Previous and subsequent claims may also be reduced in the same manner, leaving the insured with reduced cover

• Under our additional premium remedy, we would pay the claim in full (subject to policy terms e.g. policy limits, property sums insured - where average may apply if underinsurance etc) and recover underpayments to premium. Accordingly, we would charge the insured an additional £10,000 in premium and pay the £5,000,000 claim (and any subsequent claims) in full

Whilst we believe this additional premium approach should, in most circumstances, be more favourable to our customers when compared to the proportional settlement remedy under the Act, there may be circumstances where it is not, although we expect very few. For example:

• If there are no claims under the policy we may still charge the additional premium

• The additional premium we charge could be greater than the amount a claim(s) would have been reduced by under the proportional settlement approach e.g. a large premium case with relatively small claim

However, customers have given us strong feedback that their main concern is a potential reduction to a large claim rather than a standard additional premium discussion – which customers know we will handle fairly.

In addition to charging additional premium, we also have the right under the Act to vary the terms of the contract (e.g. apply different limits of indemnity, excesses or exclusions). This means the policy will be rewritten on the terms that would have applied had the insured made a fair presentation of the risk.

What do you offer ZTrade (internet) traded business customers?

Due to our confidence in ZTrade question sets, we accept the presentation as a fair presentation of the risk where the broker, having consulted with the insured as required by the Insurance Act 2015 (including consulting with the insured’s senior management and advising the insured to carry out a reasonable search for relevant information) has provided correct and complete answers to our questions. We are therefore waiving our remedies for non-disclosure beyond the questions we ask on our question sets. We simply require correct and complete answers to our questions, making it easier for the insured to meet their disclosure obligations.

How do customers react?

We have received great feedback. Customers find it a great benefit and the additional premium approach seems ‘sensible and common sense’. This supports our fair claims approach and commitment to treating customers fairly.

How will you handle lead or follow business?

In the interests of the customer, our preference for scheduled business would be to retain our leading ‘additional premium’ approach and gain follow office agreement (or lead where applicable). However, we will always support our customers and brokers and do not wish to restrict market capacity. We will therefore agree to lead or follow scheduled business, reverting to a Fair Presentation of Risk wording including a remedy for proportionate settlement, where the broker would otherwise be unable to fill the schedule.

How can I obtain further information?

Read our guide, Zurich’s approach to the Insurance Act 2015 at www.zurichforbrokers.co.uk, or contact your local sales representative.