Currently, there is no legal obligation on insurers to pay claims in a timely manner. This can have severe implications for insureds (and SMEs in particular), which the Enterprise Bill (published yesterday) seeks to remedy.
BIS acknowledged that: “late payment is a major problem for businesses. Any unnecessary delay in payment can have significant impacts on a business’ ability to continue or re-start trading after an insured loss“.
FCA rules do require claims to be handled and settled promptly, but do not provide any straightforward means for a commercial insured to recover any losses suffered by a delay in claims payment.
To tackle this issue, the Enterprise Bill introduces general damages for late payment by insurers of undisputed insurance claims, which will now be deemed a breach of an implied contractual term. Insurers must pay “within a reasonable time” to avoid additional pay-outs.
So what constitutes a “reasonable time”?
Litigation is likely to arise regarding the interpretation of this. Inevitably, time will be allowed for insurers to investigate and assess the claim. The Bill offers guidance in the form of a non-exhaustive list of factors that may be taken into account. These include:
- the type of insurance;
- the size and complexity of the claim;
- compliance with any relevant statutory or regulatory rules; and
- factors outside the insurer’s control.
How will this impact the market?
This will be a welcome protection for the insured, but not without offering some comfort to insurers. There will be a defence for any delayed payments where insurers can show reasonable grounds for disputing the claim’s validity or quantum.
Contracting out
Parties to non-consumer insurance contracts will have the option of contracting out of the provisions. This will be subject to insurers’ compliance with the transparency requirements set out in the Insurance Act 2015.
Watch this space
Readers may recall that these late payment provisions were considered too contentious for the special parliamentary procedure which introduced the Insurance Act 2015. So whilst the government has demonstrated its support of these proposals by including them in its latest Bill, whether they will survive progress through Parliament remains to be seen.