Successfully negotiating claims since 1867
Proportionality is a new concept incorporated in the Insurance Act 2015. (Well, not entirely new, for it was introduced in consumer insurance by the 2012 Act and has been a common remedy in other jurisdictions for many years.) As adjusters for the policyholder one of the concerns we at Thompson and Bryan have when proportionality becomes relevant is about establishing how and on what information proportionate remedies can be applied.
It’s common ground that insurers will have to produce figures to show what the premium should – would – have been by comparison with what it was. But how easy is that going to be, and what reliance can we place on their information? If litigation ensues, the disclosure process will reveal underwriting manuals and guidelines which may give the answer. But in many large commercial cases there will often be no formal and rigid underwriting data available. Risk managers, brokers and insurers will negotiate at inception or renewal and any supposedly firm terms, conditions and premiums are likely to be flexible according to the commercial importance of the relationship to the parties. It is likely that litigation on proportionality will involve expensive and uncertain battles of experts on either side.
And, of course, much of the data will be regarded by underwriters as commercially confidential and they will be unwilling to disclose it. We believe that this will give us working with our broker clients strong negotiating power if the case is one where litigation could be an option.
It isn’t only premium pricing where underwriters will be called on to reveal their internal operating data and procedures. The notion of inducement is central to any defence of non-disclosure or misrepresentation, and again insurers will bear the burden of showing just how a risk was accepted on the terms it was but wouldn’t otherwise have been taken. That too is an inexact process.
We already have some experience of how the principle works on consumer claims. One client with a contents claim of £70,000 on a sum insured of £50,000 that should have been £150,000 initially had the claim repudiated for misrepresentation. When that was overturned the offer was one-third – a straight average calculation – of the loss. We demanded proportionality. The insurer was unable, or perhaps unwilling, to give us the necessary figures so we got the client the full sum insured of £50,000.