This year marks an important birthday for the insurance market - the centenary of the Marine Insurance Act 1906 (MIA). It is the bedrock of all English insurance law, marine and non-marine.

The 1906 Act represents, as it says in its foreword, the codification of centuries of previous law into an Act that has survived essentially unchanged, with very little supplementary legislation (with the possible exception of the Third Party Rights Against Insurers Act 1930) through the ensuing century.

With no further reforming legislation, we have instead, regulation. But can regulation really be the most expeditious and effective way of achieving key reforming goals like transparency, contract certainty and clarity of the rights and the obligations arising between insurers, insureds, brokers and reinsurers?

The Law Commission is looking again at the question of whether the underlying law of insurance contracts needs reform.

But if reforms are limited to the long-debated severity of avoidance as a penalty for non-disclosure, and repudiation based on breach of warranty, they would be narrow indeed.

How does one explain today anomalies such as the underwriter notionally paying the broker's commission when the broker is the agent of the insured (an arguable justification for placement service agreements)? Or the fact that in the rush to contract certainty, s22 of the MIA, expressly permits the issuing of a policy after inception without specifying how long after, remains un-repealed?

Surely the need has now crystallised for wider-ranging, root and branch reform, embedding clear, contemporary, legal guidelines in underlying legislation rather than letting the MIA drown slowly in regulation?

The government recognises the need to overhaul company law and corporate governance with substantial regularity. New Acts often follow their predecessors in the space of a few years, on the basis that company law generally has its provenance in the 19th century and does not match the needs of the 21st.

There have been no less than nine Companies Acts since the MIA was enacted.

The insurance and reinsurance market, like the world and the risks it engenders, has also changed out of all recognition since 1906. Yet although the pace of change continues to accelerate exponentially, we carry on applying to these very modern conditions the principles evolved in and for the days of sea carriage of goods under sail.

Who then foresaw commercial air travel, computers, the global finance markets, electronic communication and the internet?

While there is convergence between corporate governance regimes in the US, UK and Europe, with whom we are in economic partnership, there are no measures effectively in hand to standardise the legal relationships created by purchasing an insurance or reinsurance policy, so that there is some measure of consistency in results in the different states of the EU.

The rules for claims made policies vary from member state to member state; the consequences of non-disclosure differ: these are not isolated examples.

Perhaps the time has come for setting out afresh the nature of the rights and obligations as between the parties who become involved in the purchase of an insurance contract. For example:

  • How much does it costs and who does the money go to?
  • When does it become effective?
  • What does it cover and for how long?
  • What may and may not be excluded?
  • What are the results of non-disclosure?
  • What are the consequences of other breaches?
  • To what extent is the insurer being controlled by reinsurance?
  • How quickly should claims should be paid and what are the consequences of delay?
  • Should overstatement of claims be treated as fraud and if so, how is it to be measured?
  • There is currently no consistency in dealing with fraud. Some insurers insert into their policies clear and unequivocal contractual provisions setting out the consequences of fraud. Few, if any, define what constitutes fraudulent conduct.

    Reform brings an opportunity to legislate for the effect of fraudulent conduct during the lifetime of an insurance contract thereby doing away with an eclectic set of common law rules and/or inconsistent and unclear policy wordings.

    Income streams
    Included should be a statement of the broker's rights and duties, including remuneration and agency. With some income streams denied to brokers, should they still be required to take on the risk that they may be obliged to service a claim decades after the premium has been earned and spent? Any insurance professional could write a much longer and more detailed list.

    The Law Commission's opening of the debate is just getting under way. If the market has any real appetite for taking control of its industry back from the regulator, and, perhaps, protecting it from future interference by foreign legislators, it will have a long haul ahead of it - possibly five to seven years before new law becomes a tangible prospect.

    Some heated argument can be expected as cherished rights come under dispassionate scrutiny. The industry will need to have its own debate and reach conclusions quickly.

    The London market has long and rightly been regarded as a global leader of insurance. If it is to maintain its competitive position in the world market and have an influential voice in the push that must come sooner or later from Europe for greater harmonisation of insurance law, we must press for a thorough review of insurance law in this country.

    And we must have legislation to make it not only supremely fit for the needs of the 21st century, but a standard which the world market including Europe will be convinced to follow.

    Change happens; this is an opportunity to lead it. IT

    ' Kenneth McKenzie is head of insurance and Nick Young is a partner at law firm DAC