The biggest change in insurance for a century

The Insurance Act which comes into force on 12 August could change the balance of power between insurers and their clients.

Up until now, the onus has been on the client to provide the insurer with all the details needed to assess a risk. Non-disclosure of this information – whether knowingly withheld or not – frequently means a reduced pay-out, or none at all.

In one of the biggest changes to insurance in more than 100 years, the new Insurance Act is set to turn the tables and make insurers take greater responsibility for gathering the information needed to underwrite a risk.

The act is designed to give better protection to the customer. It promises a more balanced legal position for the two parties and determines that insurers will not be able to refuse a claim if another, unrelated, condition in the policy has not been fulfilled.

The big question here is whether or not the new act will benefit flat owners.

Buildings insurance for blocks of flats has long been established as a ‘packaged insurance product’, and most insurers offer a guarantee that correctly answering their set of questions will represent a fair presentation of risk.

Insurers will still be able to refuse claims because of deliberate or reckless non-disclosure but will have a much greater responsibility to prove it.

Unfortunately, in the complex world of leasehold flats the freeholder or managing agent may not always be able to accurately answer an insurer’s questions and may as a result of the act become subject to reduced claims payments.

Insurers will have a new remedy enabling them to pay a claim on a proportionate basis. So, for example, if they charged £1,000 when in actual fact they would have charged £2,000 if they had known the true facts, then they only have to pay half the claim.

The act will also require those arranging insurance to ensure they obtain the right outcomes for their customers. And this is where the contradiction lies for the residential block market.

Under the leasehold system the focus is on satisfying the requirements of the lease. Yet if the intention of the Insurance Act is acted upon, then arguably the flat-owners’ interests are equally important.

While it is hoped it will encourage better insurance products, there are some early indications that insurers don’t really understand this sector and are introducing some interesting new conditions.

One such recent requirement is that a block is not to be built on a runway, taxiway, apron, manoeuvring area or any other part of an airport to which aircraft have access!

Paul Robertson is managing director of Midway Insurance & 1st Sure Flats