Annual Review 2016

Maintaining open access

Underwriting and Claims

The range of business classes covered by the IUA’s underwriting and claims groups is comprehensive – but far from static. New risks are continually emerging across our industry and as firms evolve their business offerings in response, so too do the discussions in market committees.

In recent years, for example, we have seen a rapidly expanding growth in the activities of our cyber underwriting group and the establishment of a delegated authority committee as more and more firms utilise coverholders to access new clients.

Usually, the emergence of a distinct new field of expertise does not emerge in isolation, but develops with support and interest from multiple existing classes of business. There was a clear demonstration of this process in 2016 which resulted in the creation of a new Developing Technology Monitoring Group.

Emerging risks such as the use of autonomous ships, driverless cars and aviation drones have been taxing companies for some time now. These and other new technologies all promise to have a profound impact on the future provision of insurance cover. Now, through its new group, the IUA is bringing together practitioners from a range of different underwriting and product development backgrounds.

Research by the London Market Group and the IUA has previously identified substantial opportunities for the insurance industry in meeting demand for new products and solutions, building on London’s reputation for innovation and flexibility in order to offset the commoditisation of more traditional risks.

Insurance Act

Last year’s annual report heralded the introduction of the Insurance Act 2015 which came fully into effect on 12 August 2016 after an 18 month transition period. This momentous piece of legislation established an entirely new legislative framework for the conduct of insurance business in the UK.

Consequently, it was necessary to review all model clauses published by the IUA and amend any provisions which did not comply with the new Act. Wordings that are not compliant are not in themselves illegal, but would simply have no contractual effect in law. The review process was completed in good time and revised clauses published to the IUA clauses website.

Later in the year, we also updated our guidance to the Insurance Act, explaining new rules affecting the late payment of claims. These were brought into force via the Enterprise Act 2016 which introduced a new statutory implied term that claims will be paid in a reasonable time. Together with the Lloyd’s Market Association we issued new publications explaining the implications of this new provision which took effect on 4 May 2017.

Another knock on effect from the Insurance Act was the publication of a new market questionnaire to assist the underwriting of general liability treaty business. This document was issued by the IUA’s Casualty Treaty Group to help ensure compliance with new requirements on the fair presentation of risk. It comprises both a narrative questionnaire with exposure, coverage and claims questions, and a supporting spreadsheet template to capture numerical data. Developed in consultation with broker representatives, it is designed for use with portfolios of all sizes and compositions.

New Market Clauses

In addition to revisions necessitated by the Insurance Act, last year saw plenty more wordings drafted and issued for general market use. There were, for example, clauses published for marine cargo business and aviation liabilities. Across several different lines of business, however, discussions have been underway to establish exclusions and write backs for cyber risk.

In each case the aim is to clarify exactly which elements of any potential cyber loss are or are not covered by a particular policy. Such questions are not new, but the issue has received increased attention following the publication of a letter to chief executives and a consultation paper by the Prudential Regulation Authority. This communication from the industry supervisor set out expectations that firms prudently identify, quantify and manage cyber underwriting risks. The IUA responded on behalf of members in early 2017.