Page 82 - CFPA-SCR-Award in General Insurance W01_2018-19_Neat

5/4 W01/March 2018 Award in General Insurance

Be aware
Under IA 2015 ‘the insured’ refers to the party to an insurance contract who is insured under the contract, or would
be if the contract were entered into.

The Act also discusses what the proposer ‘ought to know’ and the definition relates to the conduct
of a ‘reasonable search of information available to the insured’. The key here is that the larger the
organisation, the more widespread the request for information internally will have to be. The word
‘reasonable’ is very subjective so this element is likely to be the subject of litigation at some point in
the future.
The final point about assumed knowledge on the part of the proposer is also contained in section 6
where it says that information that the proposer suspects but where they deliberately refrained from
confirming will be included in what they know. No opportunity remains to ignore certain matters.

B1A Material circumstances

The Act sets out what is deemed a ‘material circumstance’ by stating:
A circumstance or representation is material if it would influence the judgment of a prudent insurer in
determining whether to take the risk and, if so, on what terms.

Material circumstances are: • those that the insurer ought to know in the ordinary course of conducting their
business for arranging insurance;
• information that should have been revealed by a reasonable search of
5 information held within the proposer’s own organisation; and
Chapter • information held by others, such as the proposer’s brokers.

Material circumstances are not:
• confidential information acquired through a business relationship unconnected
to the contract of insurance.
The proposer does not need to • matters known to individuals who participate on behalf of the insurer in
disclose material circumstances deciding whether to take the risk and on what terms (for example, underwriting
which are already known, or teams);
ought to be have been known, by • knowledge held by the insurer and readily available to the person deciding
the insurer. This includes: whether to take the risk; and
• matters known by an employee or agent of the insurer, which should
reasonably have been passed on to the person deciding whether to take the risk
(for example, the claims department).

B1B Contracting out of the Insurance Act 2015
It is possible for the parties to the insurance contract to agree that the provisions of IA 2015 will not
apply, and therefore that the previous law on disclosures would apply. The Act, however, does put a
burden on insurers to be transparent when explaining the implications of this to proposers, and should
they not do so, then any apparent contracting out within the documentation may have no legal effect.

B2 Proposer’s pre-contractual information duty in consumer insurance
As stated in the introduction, the Consumer Insurance (Disclosure and Representations) Act 2012
(CIDRA) introduced the duty to take reasonable care not to make a misrepresentation and abolished the
pre-contractual duty of disclosure for consumers.
CIDRA materially affected the relationship of insurer and proposer (who is a consumer) with regard to the
duty of disclosure, which, as we have seen, placed upon a proposer a duty is to declare ‘everything’ that
would influence the judgment of an underwriter in fixing the premium and deciding whether to accept
the risk offered.
The Act was designed to address the problems that proposers have little idea what information an
underwriter regards as relevant and that the penalties for not disclosing ‘relevant’ information are
potentially harsh. Instead, underwriters are now required to ask specific questions about what they
actually want to know.
The consumer, under this Act, has a duty to take reasonable care not to make a misrepresentation to
their insurers, and whether they have exercised reasonable care will be considered in light of all the
relevant circumstances.