The document summarizes the findings of a survey conducted by Browne Jacobson law firm on the expected impact of the Enterprise Act 2016 in the UK. The Act allows policyholders to claim unlimited damages from insurers for losses caused by unreasonable delays in claims payments. Key findings include: 1) Insurers may investigate fewer claims to avoid delays; 2) Insurers will likely pursue claims administrators responsible for payment delays; 3) Most respondents do not expect higher premiums to offset costs of the Act.

1. 1
This was confirmed in the Court of Appeal case of Sprung v Royal Insurance [1997] CLC 70.1
Only around one third (30%) of respondents believe that the Act will speed up claim payments.30%
Half (50%) believe the current soft market will prevent insurers recouping any additional cost by
charging additional premiums.50%
More than half (54%) identified the SME (small and medium-sized enterprise) property sector as
the area most likely to be affected by the Act.
54%
The majority (59%) believe that insurers will increase the use of interim payments, possibly in
an attempt to placate insureds.59%
Two-thirds (66%) of respondents believe that insurers will look to recover any payments made
for unreasonable delay from third party administrators responsible for managing claims.
66%
It is absolutely vital that insurance companies also pay out quickly… unnecessary delays by insurers
can spell the end for vulnerable businesses.
Sajid Javid,
former Business Secretary
“
”
The common law position is that an insured has no action against insurers for the late payment of valid insurance
claims. Insurers’ ability to delay the payment of claims has resulted in additional losses to policyholders, which in
extreme cases has led to businesses becoming insolvent.
From 4 May 2017, the Enterprise Act updated the law to enable insureds to recover unlimited damages caused by
the late payment of claims from insurers. This is not a penalty against insurers for negligently delaying payment
and insureds will need to prove that any loss suffered was caused by the delay in claims payment. Importantly, any
claim for damages against insurers, caused by an unreasonable delay in claims must be brought within one year of
payment being made.
Summary findings
We have conducted a survey of insurers, brokers and loss adjusters to understand the expected impact the Act will
have.
Enterprise Act 2016 and its impact on the insurance sector
Overall, the introduction of the Act is expected to be good news for insureds. It will raise awareness within the
insurance community about the impact of making late payments and will be a useful stick for insureds and their
brokers to use against insurers to speed up claims payment.
1

2. Claims investigations
The likely impact on insurers resulted in around one-third (30%) of respondents to our survey believing that insurers
may be less inclined to investigate claims because of the threat of a late payment claim. If insurers change their
behaviour and investigate fewer claims, this is likely to result in an overall increase in payments, especially those
where fraud is suspected. In addition, over two thirds (68%) of respondents believe that insurers will be subject to
spurious claims for damages under the Act.
The combination of claims not being fully investigated as frequently or in the same detail, combined with the
prospect of sham claims for damages being launched, could result in a significant additional cost to insurers.
However, it is not expected that these additional costs will be passed on to insureds by increased premiums. Where
fewer claims will be investigated, insurers may partially recoup those costs by a reduction in adjusters and/or
lawyers’ fees, as there are likely to be fewer instructions to review cover.
However, lead underwriters in a subscription market may also owe a duty to the follow market in the event a
successful claim is made for negligent delay. Follow underwriters may also seek redress from the lead underwriter
if it subsequently transpires that claims were not reasonably investigated, resulting in payments being made that
could have been avoided or reduced following the application of proportionate remedies available under the
Insurance Act.
2
Claims administrators
Our survey revealed that the largest target for insurers will be those entities that have handled claims on behalf of
insurers. Two thirds (66%) of respondents believe that insurers will bring claims against their claims administrators
where they are found to have unreasonably delayed a claims payment.
This could be an issue for those adjusters and third party administrators who have not responded to the Financial
Conduct Authority’s (FCA’s) thematic review on delegated authority and outsourcing, published in June 2015.
That review criticised insurers for failing to provide sufficient oversight on the delivery of services by third party
administrators.
Where insurers could now be subject to an award of damages for any late claim payments, they will likely review
those third parties who have delegated claims management authority in very close detail. It is also expected that
insurers will revise their terms of business and delegated authority agreements to enable the recovery of damages
to be passed straight through to those responsible for any delay.
This is because of the difficulty in proving fraud. Extensive investigations are usually required where
fraud is suspected which will delay a claims payment. A fraudulent insured could use the threat of a
claim for late payment to curtail insurers’ investigations and confirm cover in circumstances where they
may be able to avoid or reduce the claim.
TR15/7: Delegated authority: Outsourcing in the general insurance market first published 2 June 2015.
2
3
3

3. However, more than half (55%) of respondents had not yet seen any change to their terms of business agreements
or delegated authority contracts. This suggests that the immediate effect of the Act will be limited and it will
be business as usual after 4 May. That said, in the event insurers find themselves subject to claims where third
party administrators are found to be at fault, we anticipate there will quickly be revisions to delegated authority
contracts to enable insurers to hold those directly responsible for the costs of defending any claim and to pay for
any damage suffered.
This is unlikely to be a problem for the vast majority of claims administrators. However anyone that has not
responded to the FCA’s thematic review will likely find themselves a target of insurers. We anticipate that this
should improve the overall quality of outsourced arrangements and is likely to assist in addressing many of the
concerns identified in the thematic review. This chimed with many of our respondents’ comments who believed that
the Act would simply enforce existing good practice.
enable insurers to hold those directly
responsible for the costs
“
”
Contracting out
It is possible for insurers to contract out of the Act and restrict the ability of insureds to recover damages for
negligent late payment of claims. Any contracting out would need to meet the requirements of section 17 of the
Insurance Act; namely that it must be brought to an insured’s attention before the contract is entered into and that
it must be clear and unambiguous as to its effect.
Seven out of ten respondents to our survey thought that some insurers would try to contract out of the effects of
the Act, although it is generally thought that would only relate to a small proportion of the insurance market.

4. Conclusion
In summary, we believe the Act will improve the speed of claims payments and
should generally be a good outcome for insureds. However, it must be recognised
that there will be a cost to the Act, especially as some claims are unlikely to
be investigated as thoroughly as they may have been to avoid any criticism that
a claims payment had been unreasonably delayed. There is also a risk that, in
defending a claim for late payment, insurers may need to waive privilege on their
investigations, which may cause a problem where fraud has been suspected.
However, in general, the Act is welcome and should lead to greater transparency
of information between insureds and insurers to enable both parties to work
together in settling claims quicker and more efficiently.
About the research
• Our survey was carried out
between 8 - 21 March 2017.
• Of the 74 respondents that
participated in our survey, 52%
were insurers/reinsurers, 23%
were brokers, 10% loss adjusters
and 15% others.
• All percentages quoted in this
report have been rounded to
whole numbers.
• Browne Jacobson is grateful to
all those that kindly gave their
time to participate in the survey.
insurers may need to
waive privilege on their
investigations
“
”

5. About Browne Jacobson
We are a national law firm offering a unique collection of specialisms across the commercial, public, health
and insurance sectors. We have offices in Birmingham, Exeter, London, Manchester and Nottingham and are
committed to being a quality, relationship-led business.
Established in 1832, we now have over 900 people, including over 500 lawyers of which 120 are partners. We have
a client portfolio to be proud of - including major insurers, blue chip corporates, NHS trusts, local authorities and
other public sector organisations.
We are trusted advisors to the insurance sector, working alongside insurers, policyholders, brokers and public
bodies. We act for more than 60 insurance clients, with over £1 billion of clients’ reserves under our stewardship.
From our five office network, our specialists are able to provide a complete range of insurance claims management,
including Employers’ Liability/Public Liability (EL/PL), abuse, professional indemnity, coverage disputes, cyber-
security, financial institutions insurance, motor and medical malpractice. We combine this extensive knowledge
of the insurance sector with our broader commercial expertise to advise insurers, brokers and other market
participants in relation to all aspects of their business.
Key contacts
Jonathan Newbold, Partner
e: jonathan.newbold@brownejacobson.com | t: +44 (0)115 976 6581
Tim Johnson, Partner
e: tim.johnson@brownejacobson.com | t: +44 (0)115 976 6557
Michael Howard FCII FICA, Partner
e: michael.howard@brownejacobson.com | t: +44 (0)20 7337 1506
The information and opinions expressed in this document are no substitute for legal advice. It is guidance only, if in doubt please telephone
0370 270 6000.
© Browne Jacobson LLP 2017. The information contained within this document is and shall remain the property of Browne Jacobson LLP. This
document may not be reproduced without the prior consent of Browne Jacobson LLP.
www.brownejacobson.com/insurance
0370 270 6000