The Insurance Act of 2015, which comes into effect in 2016, has been variously described as the greatest change to insurance laws in the last 100 years, the greatest change in more than a century and the greatest change since 1766. Regardless of which timeline you favour, it is abundantly clear that the Insurance Act is a very big deal. Let’s briefly explore why.
The times, they are a-changing…
The way in which insurers conduct business is about to change. For example, it will be harder for insurers to avoid paying out on a policy. Yes, you read right – AVOID paying out.
In the past, any failure to disclose relevant information on the part of the insured could result in non-payment. Now, insurers have to prove the lack of information was ‘deliberate or reckless’ and they wouldn’t have sold the policy if they had all the relevant information. As you can imagine, this is not easy to prove. As a result, insurers will have to investigate potential clients more thoroughly.
Brokers are also under more pressure to collect all the client’s information and ensure it’s correct. This means that selling insurance policies will require a lot more work.
In essence, the weight of responsibility shifts from the buyer to the seller. Who had better be lifting some weights to bear the extra burden.
As always, insurers are responsible for selling clients policies that suit their needs. They also have to ensure clients understand exactly what level of protection they are buying, as well as policy implications and conditions.
Insurers must have a better understanding of their clients, whether they’re companies or people. This spells the end of ‘one size fits all’ approaches to insurance and ushers in a more tailored, labour-intensive, process.
So far, if you’re not a member of the insurance industry, this all looks pretty good for you. Better, more individualised insurance policies, less chance of companies wriggling out of making a payment, and less worry on your part about whether or not you’ve neglected to mention some detail that may seem trivial to you. But review the points above. What should strike you immediately is that they all seem to involve insurance companies doing more work, taking more risk. It is a sad fact that humans are reluctant to work for free. We’re also averse to taking risks without some additional payoff.
Yes, you guessed it, insurance is going to cost more. Insurance companies will have to thoroughly assess and evaluate a potential client’s information. They burn a lot of billable hours coming up with a policy that is fair to both parties. After all that, it’s possible clients will choose a policy from a different insurance company. Staff still get paid, however, and that work is amortised across various other policies. Yes, that’s right. You.
Trouble in the Square Mile
An obvious consequence of all this extra labour and burden of responsibility is that insurance costs will rise. More work means more people have to get paid, and they have to get paid in the UK, hardly a cheap market for labour. Some possible consequences of this include less international competitiveness, more insurance contracts lost to overseas insurers, and a shrinking insurance industry.
For an industry that is Europe’s largest and contributes one-quarter of the UK’s total net worth, even a small fluctuation can have massive impacts on the UK economy. That translates to lost jobs, not only in the insurance industry, but any and all industries which are affected by them. Which is, to put it in layman’s terms, EVERYBODY.
It’s not all bad
The extra care taken assures consumers their exact needs are covered. That means that whenever they are in a position where they need to submit a claim, they shouldn’t have to worry about whether or not their insurance company will pay out. And that makes insurance the smart option: The cost-effective option.