Insurers have had a busy year adapting to the new legal landscape introduced by the Insurance Act 2015 and this legal shake up continues into 2017. The Enterprise Act 2016 was granted Royal Assent in May and will come into force on 4 May 2017, applying to every contract of insurance made after this date.
The Enterprise Act includes a number of measures intended to encourage and support small business and has a range of provisions to promote enterprise and economic growth, including an amendment to the Insurance Act 2015, incorporating an implied term into all insurance contracts that insurers will pay claims within a reasonable amount of time.
This means that for the first time in UK law, policyholders will have a right to claim damages from insurers (on top of the claims settlement figure) in the event of a late settlement of a claim, incentivising insurers to pay claims as promptly as possible through efficient claims handling processes.
What is ‘reasonable’?
The crucial question for insurers will be ‘what constitutes a reasonable amount of time?’. The Act states that this includes a reasonable amount of time to investigate and assess the claim, and will be influenced by a number of factors including:
- Which type of insurance the claim is being made under
- The size and complexity of the claim
- The need to comply with any relevant statutory or regulatory rules or guidance
- Factors outside the insurer’s control.
So every claim will be judged on its own circumstances. It’s also important to note that if the insurer thinks there are reasonable grounds to dispute a claim, the insurer will not be in breach of the implied term whilst that dispute is ongoing.
Simon Jones, Director of Quadra said:
“From a practical perspective, the legislation supports the FCA`s Fair Treatment of Customers and will be seen as a positive development further continuing the Government’s aim of rebalancing the power between insurers and policyholders. We do not expect this to lead to a large volume of litigation against insurers however as, in common with any claim for breach of contract, the insured will have to prove the extent of their losses and connection with the alleged unreasonable delay i.e. the insurer’s delay actually caused the damages and that these damages were foreseeable by the insurer at the time the policy was issued.”