Following risk management association Airmic’s publication of a guide and model wording on 11 June 2013, with the aim of encouraging insurers to remove basis clauses from their policies, the Lloyd’s Market Association (LMA) has expressed support for the idea. Basis clauses, no longer permitted in consumer insurance contracts, have the effect of voiding the policy if the proposal form is inaccurate in any way, even if this is unintentional and does not affect the risk.
While they are still widely used in commercial contracts, the Law Commission has criticised them heavily and is currently considering their prohibition. Airmic is proposing that its members lobby their insurers to make use of the endorsement which negates the effect of a basis clause in contracts. Axa Corporate Solutions has already confirmed that it will remove the clauses from its existing and future contracts, and Airmic anticipates that other insurers will follow suit.
The LMA, the association of all Lloyd’s managing agents, has told Insurance Day that it supports the Law Commission’s proposals, which will lend weight to Airmic’s campaign.
If the idea is widely accepted and implemented in the market, it is likely to be welcomed by the regulators, since it is a move towards fairer treatment of commercial customers. It also promises to further enhance the reputation of the UK insurance market, because it increases the certainty around whether insurers will pay a valid claim.