Insurance Act creates new duty to disclose

09-Jun-2016 - Last updated on 10-Jun-2016 at 16:03 GMT

Food manufacturers will need to tell their insurer if the factory next door is a high fire risk

Food and drink manufacturers will need to disclose more information that could have a material impact on their insurance policies or risk them not paying out in the event of a claim, under the new Insurance Act that comes into force on August 12 this year.

According to Vivienne Hexter, a technical consultant who works for the food and drink risk management team at insurance company Aon, the Insurance Act – which is designed to rebalance responsibilities between parties and put more control in the hands of insurance buyers – also places more duty of disclosure on the insured party.

Hexter said the devil of this new legislation would be in the detail. More people within companies than in the past would be required to seek out information about potential risks, she added.

They will have a duty to disclose relevant information about supply chains, for example.

The Enterprise Act, another piece of legislation that impacts on the Insurance Act and which received Royal Assent on May 4, has brought in new rules designed to cut red tape and late payment, including the late payment of insurance claims.

New challenges

The new challenges for food manufacturers under the Insurance Act, however, are in gathering and presenting relevant information to their insurers, said Hexter.

Traditionally, the designated risk manager would have collated the answers to a specific set of questions, but that will change under the Insurance Act.

“Those hard and fast rules will become far more fluid,” said Hexter. “Knowledge of local challenges and issues will become essential.

“That might include details of a neighbouring facility with a high fire risk, unusual processing and packaging locations, niche products, and a complex supply chain.”

Furthermore, from August 12, the person responsible for risk management and insurance will require more intimate knowledge of a company’s supply chains, rather than just potential issues within the business, she added.

‘Comprehensive portfolio of suppliers’

“They will have to develop a far broader understanding of the business and all its partners – a change that could extend to a comprehensive portfolio of suppliers,” said Hexter.

“Potential or inherent risks associated with products and production three or four steps down the supply chain might soon be considered crucial information. Get it wrong and the insurance policy might be void.”

Until these issues are tested in the courts, however, it will be difficult to determine what knowledge should “reasonably” be known by the insured and disclosed to insurers, said Hexter.

How deep and how far food manufacturers will be expected to look has yet, therefore, to emerge, she added.