Government claims new rules will save businesses £100m
The government has introduced its long-awaited Insurance Bill, which will abolish controversial ‘basis of contract clauses’ for commercial insurance.
The abolition of commercial basis clauses is one of a series of changes in the Bill, which the government claims will “support the growth of Britain’s insurance industry and help customers by updating the 10- year-old rules governing contracts between businesses and insurers.”
Basis clauses act as a warranty that all information a policyholder gives to an insurer is correct. They are controversial because they mean that even small errors in the information that are not material to the risk allow the insurer to void the policy.
The clauses have already been abolished for personal insurance contracts, and were widely expected to be removed from commercial policies.
Other reforms in the Bill include introducing a duty of ‘fair presentation’ of the risk onto commercial policyholders and giving insurers a number of remedies for breach of this duty.
It also provides “clear, robust remedies” for insurers who are presented with fraudulent claims.
The government said the more modern regime resulting from the new Insurance Bill will allow the UK insurance industry to compete more effectively with global competitors.
It also expects the bill to save businesses £100m over the next 10 years, thanks to lower litigation and transaction costs.
Economic secretary to the Treasury Andrea Leadsom said: “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.”
Aviva UK and Ireland general insurance chief executive Maurice Tulloch said: “The Bill is a very welcome development that will deliver significant benefits to both customers and the industry, helping make the UK a great place to do business.”
UK risk managers association Airmic’s chief executive John Hurrell added: “The UK is unique among advanced economies in that our current legal framework potentially penalises the purchaser of commercial insurance and creates uncertainty over whether policies bought in good faith will pay out in the event of a claim.
“The new legislation provides much needed clarity, which will be good for business and will help to maintain confidence in the London insurance market.”