Policyholders will soon be able to claim damages for late payment of insurance claims, following the passing into law yesterday of the Enterprise Bill. Brokers and insurers are being urged to prepare for the new rules now.

The question of what is a reasonable time to investigate a claim and how insurers can demonstrate that they have not unreasonably delayed payment is likely to be a contentious area, and law firm CMS is advising that insurers review their claims procedures and have systems in place to show that they acted reasonably if required.

“Joining the Insurance Act 2015, the new measures will inevitably introduce some further legal uncertainty for the insurance market,” says Stephen Netherway, Partner and Head of the FIS Insurance Sector at CMS.

“Insurers and brokers must take steps to prepare for the changes. Not only will they need to conduct appraisals of their claims procedures and systems in the light of the new legislation but where insurers are considering excluding or limiting their liability for damages, wordings will need to be reviewed to achieve this.”

The Enterprise Act is good news for the insurance industry and for businesses, according to the British Insurance Brokers’ Association (BIBA). Its chief executive, Steve White, said it is just what the association's latest manifesto had called for

"We called for this move towards a more deregulated environment to include the FCA. In February the Department for Business, Innovation and Skills indicated this would be the case. BIBA members pay £28m into their FCA fee block – a disproportionately high amount compared to the risk they pose – and we are delighted that there will soon be a requirement to report to government about the effect that regulation red tape has on growth.”

BIBA's executive director Graeme Trudgill added: “As well as being potentially good news for insurance brokers, this new law benefits their business customers too particularly because of the change to the Insurance Act 2015 to include damages for the late payment of claims which BIBA lobbied for. This is a piece of legislation that we support and which we see as a major economic stimulant.”

There will be a twelve month transition period before the legislation comes into force, allowing insurers and brokers to prepare for the changes.

Key considerations for insurers and brokers (Source: CMS)

There are important implications for market participants to consider, including:

• Where risks are written on a subscription basis, issues where non-claims agreement insurers have limited control over claims payments.

• Whether an award of damages would be recoverable under reinsurance arrangements.

• Claims reserves may need revising to reflect any potential increased exposure.

• For non-consumer insurance contracts insurers may wish to consider policy terms limiting or excluding their exposure.


Beyond insurance, additional measures under the Enterprise Act will reform the business rates appeals system; enhance shop workers’ rights to opt out of working on Sundays; pave the way for bringing private capital in to the Green Investment Bank; amend the Small Business Enterprise and Employment Act relating to the Pubs Code and adjudicator; put a cap of £95,000 on exit payments in the public sector; allow the government to fund UK Government Investments Limited; and update the Industrial Development Act to help support the roll-out of telecommunications and broadband.

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