The purpose of the Deregulation Act was to cut "red tape" for businesses, organisations and individuals, by repealing legislation which was considered to have little practical use. The provisions in the Act are therefore wide-ranging, covering a variety of areas and legislation, and are coming into force at different times. Section 9, headed "motor insurers", is of key importance for the motor insurance industry.
Essentially, section 9 amends section 147 of the Road Traffic Act 1988, which relates to the issue and surrender of certificates. The two substantive amendments are as follows:
- Under section 147(1), it used to be the case that a policy of insurance "was of no effect", for the purpose of an insurer having an RTA liability, until the motor insurance certificate had actually been delivered by the insurer to the policyholder. The re-worded section 147(1) states that the insurer must simply deliver the insurance certificate to the policyholder. The insurance policy is therefore effective irrespective of whether the certificate has been delivered, although there is still a requirement to deliver the certificate. Inception must still be recorded on the Motor Insurance Database (MID).
- Section 147(4), which requires the policyholder to surrender the insurance certificate following cancellation of the policy, is deleted in its entirety. Section 147(5) is therefore also deleted, which states that any person who fails to surrender the insurance certificate is guilty of an offence. Previously, if the policy was cancelled mid-term and the insurance certificate was not returned, an insurer would retain an RTA obligation to deal with a third party claim if the policyholder was subsequently involved in a fault accident. Now, insurers' liability will automatically come to an end on cancellation, providing the MID has been updated.
Schedule 3 of the Act amends the wording of various other sections of the Road Traffic Act to tie in with the amendments made under section 9.
Effects
Insurers no longer need to try to recover the certificate from the policyholder when the policy is cancelled mid-term in order to avoid a potential liability to deal with a third party claim. The policyholder will not need to return the certificate, or make a statutory declaration or any statement acknowledging that the policy has ceased. It will not be necessary for insurers to consider commencing proceedings in respect of the failure to surrender a certificate.
If the insurer's contractual cancellation is challenged and it is found to have not been in accordance with the policy, then insurers will retain an RTA liability to deal with a third party claim.
Article 75 will need to be updated, as it currently provides that an insurer who has cancelled the policy remains an Article 75 insurer unless the certificate has been recovered, or proceedings have been commenced for its return. A sub-committee at the MIB is considering the amendments that are required to Article 75. Coincidentally, these are also due to go before the MIB's AGM today. It is anticipated that Article 75 may be amended to remove Article 75 status from an insurer where the policy has been cancelled, provided that the MID has been updated to show the cancellation.
Whilst the commencement date for Section 9 and Schedule 3 is today, it is currently uncertain as to whether or not the provisions of the Act will have retrospective effect, i.e. in respect of policies that have already been cancelled. The MIB is seeking clarification on this from the government and some further secondary legislation may be required.
Consequences
With these changes coming into effect, the law of motor insurance will become simpler. The main consequences of the Act that we foresee for motor insurers include the following:
- Insurers will no longer incur the time and costs associated with trying to retrieve an insurance certificate following cancellation mid-term.
- There are likely to be fewer applications for declarations under Section 152: they will become irrelevant if the policy has already been cancelled.
- There will be savings for insurers on dealing with third party claims, as there will no longer be a requirement to deal with a third party claim as an RTA insurer if the policy has been cancelled and the MID has been updated.
- There will be a corresponding increase in the number of claims being dealt with by the MIB under the Uninsured Driver's Agreement. Accordingly, this potentially could lead to insurers' levy to the MIB central fund being increased.
- There may well be an increase in policy cancellations by insurers, especially for more trivial breaches, in an attempt to avoid a liability to deal with potential third party claims. In turn, this could lead to an increased amount of challenges to policy cancellation from policyholders and complaints to the Ombudsman.
- There are also likely to be increased instances of challenges to policy cancellation by other insurers in cases involving more than one tortfeasor, especially in higher value injury cases, and also by the MIB. Stephen Worthington QC considers that policy cancellation is likely to become "the next battleground between insurers".
Issues for Insurers
Insurers should do the following in preparation for the changes:
- Update their policy wording if it refers to the certificate being returned in the event of cancellation of the policy
- Ensure that the policy wording in relation to cancellation is clear, and that the cancellation letters themselves are clear and unambiguous, to avoid possible challenges to cancellation
- Update the MID as soon as possible after cancellation, to avoid retaining an Article 75 liability. Insurers may want to consider tightening up on their internal procedures in this regard.
