Damages for late payment – will it change behaviours?

Insurance claim
The Enterprise Act 2016 came into force today, 4 May 2017. The Act introduces an implied term into all new contracts of insurance and reinsurance written after that date that requires the insurer (or reinsurer) to pay the claim within a “reasonable time”.

Much has already been written about the new legislation, including what “reasonable” means. For more information, click here.

It will, however, be interesting to know whether or not insurers either have, or will, adapt their systems or behaviours to accommodate the new legislation. At a seminar we hosted last year when the new legislation was announced, a cross-section of claims managers and adjusters were split evenly on whether the new legislation would make a practical difference.

It has, of course, been a fact of life for many years now that insurers are benchmarked on claims, whether that is through regulation (TCF and conduct), external benchmarking surveys, broker surveys or direct client feedback. Keeping the client and making good the promise to pay claims (and fast) has never been more acutely understood by the market.

Whether we will see a defensive style of claims management also remains to be seen. Some claims managers in our straw poll anticipated that it would be foolish for a claims adjuster to decline a valuable claim without getting internal or external legal advice (as is commonly done in the US to protect against possible bad faith allegations). Others felt that the London market practice was sufficiently good to manage the issue.

Time will tell, but certainly the need was felt by AIRMIC and the risk manager community that ‘good practice’ needed to be enshrined in the law.

Kiran Soar