Yemisi Izuora/Agency Report
In the latest twist in the battle to secure damages for late claims payment under UK law, London insurance market bodies have withdrawn an amendment to exempt large risks from planned legislation but may look to reinstate a suggested carve out for reinsurance.
The reinsurance exemption would directly affect those companies that reinsure their captive or access that market for catastrophe-level exposures.
As reported in CRE, representatives of the London insurance market oppose and want to tone down a proposed law change that would see policyholders around the world entitled to damages for late payment of valid insurance claims in the UK.
The new law would apply to all policies taken out in the UK, including those of European risk managers in the London market.
Despite differences of opinion, both sides of the risk transfer divide are working together to find a suitable solution for all parties.
The latest development in the saga this week saw the Lloyd’s Market Association (LMA) and the International Underwriting Association (IUA), which represent the interest of the Lloyd’s and wider London market, withdraw an amendment to the UK’s Enterprise Bill that is set to introduce the law change.
The amendment proposed that part of the bill that says policyholders can claim damages if an insurance settlement is not paid in a reasonable time should not apply to contracts of insurance for large risks, as defined by the Solvency II Directive.
This would define ‘large risks’ as policies for firms with a balance sheet of £4.4m and a turnover of £9m. This raised eyebrows because it would mean that many SMEs, as well as large companies, would be exempt from the claims protection provision.
This large risk amendment was put forward by the London market representative bodies, but was withdrawn following the bill’s reading in the UK’s House of Lords. We have been told that the market may put forward further proposals that would exempt reinsurance from the damages for late claims payment provision.
This carve out was also part of the large risk amendment and still remains potentially on the table.
Speaking to CRE on behalf of the his association, IUA and the London company market, David Gittings, the LMA’s CEO, said, however, that insurers remain in ‘very constructive dialogue’ with insurance buyer representatives and are ‘still hopeful of finding a mutually agreeable solution’.
Bruce Hepburn, CEO of insurance governance expert Mactavish, told us yesterday that his firm and Airmic now have ‘very good dialogue’ with London market representatives on this issue.
“They are engaging with us and I think there is a good chance we will find a solution,” he told CRE.
Airmic and Mactavish, which specialises in the reliability of insurance contracts arranged under English law and is behind much of the campaign to see the damages for late payment provision laid out in the Enterprise Bill become law, would still like to see the original proposal contained in the bill come to fruition.
But they are willing to work with the IUA, the LMA and the UK government to find a suitable solution for all concerned, as long as it doesn’t stray from the provision’s original intention.
CRE has also been told that the Association of British Insurers (ABI), British Insurance Brokers’ Association (BIBA) and the UK’s Law Commission, all of which reportedly support the bill, are being kept in the loop.
Although Airmic and Mactavish appear buoyed by discussions with the London market community, Mr Hepburn stressed that any reinsurance exemption would have big implications for readers of CRE.
“That is particularly interesting to risk managers because if they have a captive with a reinsurance contract in one fell swoop all of those large buyers will be excluded from seeking damages for the unreasonable late payment of large claims,” he said.
Interestingly the IUA, LMA and Lloyd’s did not table an amendment to the Enterprise Bill this week, as expected, that would have watered down its late payment provision in favour of a clause proposing that damages should only be available if an insurer has deliberately or recklessly-as opposed to unreasonably, incompetently or negligently-failed to pay a claim within reasonable time.
It was not put forward because the London market representatives did not feel it would likely gain support from insurance buyers and the wider legislative body.
Mactavish has instructed one of the most senior and respected insurance QCs in the UK to review the Enterprise Bill drafting, the LMA’s proposed amendments and thirdly the LMA’s concerns.
The progress of the Enterprise Bill’s claims provision has huge implications for all those policyholders that buy cover in the UK and the London market, including insureds in Europe.
Mactavish, for one, believes it is a watershed moment for the London insurance market as it decides whether to risk reputational damage by fighting consumer protection or embraces an opportunity to position London as a client-focused place to do business by backing law change.
Should the bill proceed as planned, damages for late payment would apply to insurance contracts incepted sometime in 2017.