Management / How the Insurance Act 2015 will affect relationships between customers and insurers

How the Insurance Act 2015 will affect relationships between customers and insurers

The Insurance Act 2015 is set to improve customer experience as insurers are demanded to ask more specific, transparent questions to assess risk. According to the new act, insurance companies may only ask for information that is entirely relevant in the assessment of a customer’s risk.

The act, which updates legislation last examined by regulators in 1901, puts insurers and consumers – in this instance predominantly businesses – in a more equal relationship.

This legislation is also going to force insurance companies to better communicate with customers through omni-channel strategies rather than simply letters. This could be highly costly to insurers, as many will have to overhaul their out-of-date communications systems.

Simon Perry, insurance subject matter expert at GMC Software, told Business Reporter: “What the 2015 act does is update all the legislation around primarily business to business insurance. This includes commercial insurance and reinsurance. It tries to clarify some of the ambiguity that there is in the current legislation.

“The build-up to it has been created by a lot of work done by the Law Commission around some of the insurance legislation and some of the court cases that have taken place recently. It’s an attempt to make things clearer and fairer in insurance, for both the insured and the insurer.

“It builds on the 2013 Consumer Insurance Act, which focuses more on guidelines between the company and the consumer. So if you like, the difference between the two is that the more recent legislation is between an informed consumer and an insurer.”

Current insurance legislation expects consumers to have a certain level of expertise when buying their insurance, as they need to be able to ask the right questions to evaluate the policies they buy.

This therefore puts the average consumer, be it an individual or a business, at a disadvantage as it is highly unlikely that they will be able to understand policy sufficiently to hold their own while negotiating a contract. This new legislation is putting more responsibility on insurers to ensure the customer is aware of all aspects of the insurance they want to buy and also what will affect the risk for them. This is ensuring a “duty of fair presentation is upheld”.

This means that customers will be able to make more informed decisions on their policies and will be considered partners to insurers once the act is instigated. This concept of partnership is a key part of the new legislation.

“The partnership comes where you’re talking about the information that the insurer’s asking and what the consumer gives to them,” Perry explained.

“So in the past the insurer could ask for just about any information not necessarily relating to the type of insurance they’re buying. There’s a lot of ambiguity with what insurers need to ask and what is acceptable and relevant for them to ask to assess the risk.

“It’s a partnership because now the insurer is being asked to ask specific questions in a plain language so that the consumer can understand what is actually affecting the risk. It’s making it a bit more transparent.”

It is likely that the new legislation will lead to court cases from both insurers and customers in the coming months, which will test the law and which side it is likely to favour. These contests will occur in a range of areas including remedies, warranties and fraud.

“It’s a legal act so the companies have to submit to in accordance with the law,” Perry explained. “It’s been coming for a year, which has given companies enough time to prepare for it in theory. After it is brought in there will be a period of uncertainty and more than likely a few court cases.

“There will be some challenges in court to see how both parties have lived up to their commitment. Remedies, warranties and fraud are all likely to be areas where parties contest the policy.  So typically the first way in which it may come up is if an insurer decides to renege on policy due to a fraud. In the past if an insurer found fraudulent activity they were entitled to straightaway turn over a contract and sue the other party. The act has slightly nuanced this now.

“For example, if someone set up a group scheme and one party committed fraud, the other people are not party to it and so will not be held responsible, whereas before they would have been considered involved. This will be brought to the courts because the insurer is likely to contest the other people’s involvement.”

The 2015 Insurance Act is therefore likely to improve customer experience when dealing with insurers. Through the act’s instigation consumers will receive more clear and transparent communications from their insurance company through use of improved technology, and will only be asked questions that are completely relevant in the assessment of the risk.

This will also give the two parties a more equal relationship, so that consumers understand what factors affect their risk. Nevertheless, the transition is unlikely to initially be smooth – the prediction of court cases in the future suggests the policy’s benefits will be tested.

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