30 June 2015 saw one of the most welcome and overdue pieces of legislation for motor insurers come into force; section 9 of the Deregulation Act 2015.
The Act affects all motor policies, whether personal or business, and is set to make it easier for insurers to cancel an insurance contract. It does not affect, or deal with, an insurer’s right to apply to the courts to declare void a policy of insurance for non-disclosure or misrepresentation.
The enactment of the Deregulation Act amends section 147 of the Road Traffic Act 1988 with consequential amendments to sections 148, 151, 152, 153 and 161. The effect of the amendments to s. 152 is to relieve policyholders of the obligation to surrender certificates and to relieve insurers of the burden of taking proceedings when the policyholder fails to surrender it. The offence of failure to surrender (s. 147(5)) is extinguished, which is good news for policyholders.
What will change?
Gone is the requirement for policyholders to surrender motor certificates or make statutory declarations as to the loss or destruction of a certificate or the need for insurers to take proceedings for a policyholder’s failure to surrender a certificate. This was a needless layer of complexity and cost that insurers were understandably unwilling to take in every instance of policy cancellation. Not taking this final step left insurers vulnerable as Road Traffic Act insurers for the remaining period left on the policy.
Under the new Act, motor insurers wishing to cancel motor insurance contracts simply have to cancel the insurance in accordance with the policy wording. Currently that will still leave them with a potential contingent liability under Article 75 of the Motor Insurers’ Bureau’s (MIB) current Memorandum and Articles of Association stand but by the time you read this it is likely that the MIB membership will have voted to amend Articles 75(2)(2)(iv)(a) and (b) to reflect s. 152(1)(c) of the 1988 Act, as amended. The anticipated amendment is likely to require any cancellation to be uploaded to the Motor Insurance Database (MID) as the final step before the insurer is off risk. Between cancellation and removal from MID the insurer will have an Article 75 liability.
When will cancellation be effective?
For policies cancelled on or after 30 June 2015 the cancellation will take effect in accordance with the policy wording and (assuming Art 75 is amended as expected) once the cancellation is uploaded to MID. Once the cancellation is uploaded to MID, the insurer will be off risk. Insurers will still be responsible for liabilities incurred up to the point of cancellation.
We have just received confirmation that the Act will apply to cancellations effective on or after 30 June 2015. So even where the procedure has begun before 30 June, if the cancellation is effective on or after 30 June, the new Act will apply.
Are there any pitfalls?
Yes. Before cancellation effectively removes any Article 75 liability the policy must have been cancelled ‘strictly in accordance with the power of cancellation contained in the Member’s contract for the risk’. Particular care needs to be taken where an intermediary is cancelling on the insurer’s behalf. Failure to cancel properly will render the insurer Article 75 insurer until the cancellation can be corrected.
What does it mean for motor insurers?
Insurers will welcome the much simplified cancellation procedure offered by section. 152(1)(c) of the Road Traffic Act 1988 as amended by the Deregulation Act.
To take full advantage of the new procedure insurers should ensure that their standard policy wording gives them sufficient powers of cancellation while remaining fair to customers. Any standard cancellation letters and workflow should be reviewed to ensure compliance, fairness and accuracy.
Matthew Burfield is a partner in the motor group at BLM (matthew.burfield@blmlaw.com)
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