The requirement of a "reasonable search" is a key aspect of the fair presentation of risk under the Insurance Act 2015.
This requirement obliges those seeking insurance to make an adequate effort to uncover and disclose all material facts and circumstances to the insurer before entering into or altering an insurance contract.
Here's an in-depth look at what constitutes a reasonable search and its implications for both policyholders and insurers.
Reasonable Search Definition and Purpose
A reasonable search involves conducting a thorough investigation into the information available to an individual or organisation that is relevant to the risk being insured. This includes gathering information held by the policyholder, as well as by others within the organisation.
The aim is to ensure that all significant information that could affect an insurer's decision to underwrite a risk and on what terms is disclosed. This allows the insurer to accurately assess the risk and offer terms that are reflective of that risk.
Scope of a Reasonable Search
For businesses, a reasonable search includes making inquiries across different departments or sections of the organisation to gather relevant information about the risk. This might involve consulting with finance, operations, human resources, and any other departments that might possess information pertinent to the insurance coverage being sought.
Information that is known by third parties, such as insurance brokers, or consultants engaged by the policyholder, should also be included in the search. If these parties are aware of material circumstances related to the risk, this information needs to be communicated to the insurer.
Factors that can Influence the Extent of the Search
Size and Complexity of the Business:
The larger and more complex an organisation, the more extensive the search needs to be. Larger businesses may need to implement more systematic processes to ensure that all relevant information is collected and disclosed.
Nature of the Risk:
The specific nature of the risk being insured also dictates the scope of the search. Risks that are complex, unusual, or particularly volatile may require more detailed investigation to uncover all material circumstances.
Available Information:
The search should account for information that is readily available or could be obtained without undue hardship. This includes both internal records and externally held information that is relevant to the risk.
Responsibilities and Expectations
Policyholder's Responsibility:
The onus is on the policyholder to conduct the reasonable search. This involves ensuring that adequate procedures are in place to gather relevant information and that these procedures are followed before making representations to the insurer.
Insurer's Expectations:
Insurers expect that a reasonable search has been conducted and that the information presented to them is a fair representation of the risk. However, if insurers suspect that information might be incomplete or if the presented information raises questions, they may ask for additional details.
Legal and Practical Implications
Failure to conduct a reasonable search can lead to disputes over non-disclosure or misrepresentation of material facts. Under the Insurance Act 2015, if it is found that a fair presentation of the risk was not made due to inadequate search efforts, insurers may have grounds to apply proportionate remedies, ranging from adjusting the terms of the contract to voiding the policy in cases of deliberate or reckless non-disclosure.
The requirement for a reasonable search is central to the Insurance Act 2015, promoting transparency and fairness. By obliging policyholders to actively gather and disclose relevant information, and by allowing insurers to rely on the completeness and accuracy of the information provided, the Act aims to ensure that insurance contracts are founded on a mutual understanding of the risk involved.
About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.