Insurance Act 2015 compliance for businesses

The Insurance Act 2015 fundamentally changed how businesses buy insurance in the UK. It came into force on 12 August 2016 and replaced the 110-year-old duty of utmost good faith with a new duty of fair presentation.

This guide explains your obligations when purchasing or renewing commercial insurance, what happens if you get it wrong, and how the Act protects you from insurers voiding policies for innocent mistakes.

Who does this Act apply to?

The Insurance Act 2015 applies to all non-consumer insurance contracts - essentially all business insurance. This includes:

• Employers' liability insurance
• Public liability insurance
• Professional indemnity insurance
• Commercial property insurance
• Business interruption insurance
• Directors and officers (D&O) insurance
• Cyber insurance
• Marine, aviation, and transport insurance

Personal insurance (home, car, travel) is covered by different rules under the Consumer Insurance (Disclosure and Representations) Act 2012.

The duty of fair presentation

The most significant change in the Insurance Act 2015 is the replacement of 'utmost good faith' with a duty of fair presentation. Before 2015, insurers could completely void a policy if you failed to disclose any material fact - even if you didn't know it was material or the omission was innocent.

Under the new regime, you must make a fair presentation of the risk, but insurers now have proportionate remedies rather than automatic avoidance.

What you must disclose

When applying for or renewing commercial insurance, you must disclose:

1. Every material circumstance you know or ought to know - facts that would influence a prudent insurer in deciding whether to accept the risk and on what terms
2. Sufficient information to put the insurer on notice - so they know to make further enquiries about potentially relevant matters

Knowledge requirements

The Act defines what you 'ought to know' based on a reasonable search. For companies, this includes:

• Information known to senior management (directors, executives, those with managerial responsibility)
• Information held by those responsible for arranging insurance
• Information that would have been revealed by a reasonable search of company records

Practical implication: You cannot bury inconvenient facts in subsidiary files. Before renewal, systematically review incident logs, claims history, and changes to your operations.

Material circumstances

A circumstance is 'material' if it would influence the judgement of a prudent insurer in deciding whether to take the risk and on what terms. Common material facts include:

• Claims history: Previous claims, near-misses, and incidents (even if not claimed)
• Criminal convictions: Unspent convictions of directors, partners, or key employees
• Business changes: New activities, locations, or significant growth
• Risk factors: Hazardous materials, high-value stock, security weaknesses
• Regulatory issues: Enforcement actions, warnings, or ongoing investigations
• Financial difficulties: CCJs, insolvency proceedings, significant debt

How to present information

Disclosure must be made in a manner that is:

• Clear and accessible - understandable to a prudent insurer without needing to cross-reference multiple documents
• Reasonably presented - not buried in data dumps or deliberately obscured
• Accurate - substantially correct, without misleading half-truths

Data dump prohibition: Simply providing access to thousands of documents without highlighting material issues does not satisfy the duty. The insurer is entitled to receive information presented in a way that makes material facts apparent.

Warranty reform

Before the Insurance Act 2015, breach of a warranty (a promise in your policy) automatically discharged the insurer from all liability - even for unrelated claims. The Act fundamentally reformed this harsh rule.

Practical impact of warranty reform

Before the Act: If your policy warranted a burglar alarm was operational and it was temporarily switched off for maintenance, the insurer could refuse all claims - including a fire claim that had nothing to do with the alarm.

After the Act: Breach of the alarm warranty suspends cover for burglary claims only. Cover resumes when the alarm is repaired. The fire claim would still be valid because it's unrelated to the warranty breach.

This change particularly benefits businesses with complex operations where minor technical breaches were previously exploited to deny legitimate claims.

What happens if you breach your duty

If you fail to make a fair presentation, the insurer's remedy depends on whether your breach was:

• Deliberate or reckless - you knew or didn't care it was untrue
• Negligent - careless but not dishonest
• Innocent - reasonable belief that disclosure was adequate

The Act replaced the previous 'all or nothing' approach with proportionate remedies.

How proportionate remedies work in practice

Example 1 - Deliberate breach: A business deliberately conceals a previous major flood when applying for property insurance. The insurer can avoid the policy entirely and keep all premiums.

Example 2 - Negligent breach: A business carelessly states it has 10 employees when it actually has 25. If the insurer would have charged 50% more premium for 25 employees, it can reduce claims payments by one-third.

Example 3 - Innocent breach: A business reasonably believed a past incident was not material (perhaps because the insurer didn't ask about it). The insurer may have limited remedies if the business acted honestly and reasonably.

Making insurance claims

The Act also improved policyholders' rights when making claims. Prior to 2015, there was no implied term requiring insurers to pay claims within a reasonable time.

What is a 'reasonable time'?

The Act doesn't specify an exact period - it depends on the type of insurance and complexity of the claim. Courts consider:

• The type of insurance (simple property vs complex professional liability)
• The size and complexity of the claim
• How easy it is to investigate and assess
• Whether the policyholder has co-operated

Industry practice suggests straightforward claims should be paid within 30-60 days. Complex claims may take longer, but the insurer must act reasonably and keep you informed.

If an insurer unreasonably delays payment, you can claim damages for the late payment - potentially including consequential losses like business interruption costs.

Fraudulent claims

The Insurance Act 2015 also codified the remedies for fraudulent claims, providing clarity on what insurers can do when fraud is detected.

What constitutes fraud

Fraudulent claims include:

• Entirely false claims - claiming for losses that never occurred
• Exaggerated claims - inflating the value of genuine losses
• False documentation - submitting fabricated invoices or receipts
• Concealing defences - hiding facts that would defeat the claim

Warning: Even if 90% of your claim is genuine, adding a 10% exaggeration can make the entire claim fraudulent. Always claim only what you can evidence.

Contracting out

Unlike consumer insurance law, the Insurance Act 2015 allows contracting out - meaning insurers can disapply certain protections if:

• The disadvantageous term is clear and unambiguous
• The insurer takes sufficient steps to draw the term to your attention before the contract is made

In practice, most standard UK business insurance policies now operate on 'Act-compliant' terms. However, always check:

• Specialist insurance (marine, energy, aviation) may have modified terms
• Large commercial policies may be individually negotiated
• Policies with London Market insurers may have different wording

Practical compliance steps

When applying for or renewing insurance

1. Conduct a reasonable search - review claims history, incident logs, regulatory correspondence, and any material business changes
2. Involve senior management - ensure those with relevant knowledge contribute to the application
3. Answer questions fully - respond comprehensively to proposal form questions
4. Volunteer material facts - disclose anything a prudent insurer would want to know, even if not specifically asked
5. Present clearly - organise disclosures logically; don't bury material facts in appendices
6. Keep records - document what you disclosed and when

During the policy period

1. Notify material changes - inform your insurer of significant changes to your business or risk profile
2. Maintain warranties - ensure you comply with all policy conditions (alarms, security, fire safety)
3. Report incidents promptly - notify potential claims even if you're not sure whether to claim
4. Keep evidence - document incidents, take photographs, preserve records