North Sea oil and gas firms may be left with a gap in their insurance cover because of legal changes being introduced next year, law firm HBJ Gateley has warned.
Requirements being brought into law by the Insurance Act 2015 mean businesses will have to give a breakdown of any risks to make sure they have enough insurance cover for operations, it added.
A gap could be created if these risks are not adequately identified, leaving the insured party without proper cover, it said.
Alison Sim, a partner in the Aberdeen office of HBJ Gateley, said: “The assumption that insurance policies will cover unforeseen risks is no longer one that companies working in the North Sea can afford to make.
“A fair presentation of risks now has to be provided and disclosed in a manner that is reasonably clear and accessible so as not to leave the insured company exposed to exclusions or unexpected costs in the form of reduced claims payments.
“While it might feel like a painful process to undertake – and there’s no doubt mapping every permutation of business risk will be a significant exercise – getting into the detail of a company’s risk will have a benefit of improving internal processes and governance.
“There’s also a possibility of reducing insurance premiums by exhaustively ring-fencing risks, since there will be less scope for insurers to price unexpected events into policies.
“However, the key point is the requirement for insured companies to have a forensic understanding of their risks and ensuring they have fully disclosed these to their insurers, without which there’s a real possibility of lacking the proper cover.”
Ms Sim said the new legislation was likely to benefit both sides but added: “It does leave open to human error the possibility of a problematic omission which could have serious repercussions.
“Getting the right processes in place now will help to avoid any such problems and ensure a smooth transition when the act comes into force in August next year.”
Tom Aldridge, director at independent insurance broker TL Dallas, said: “Clients should be able to use this change as an opportunity to ascertain a very clear picture of their business risks.
“Most brokers will recommend the renewal process starts earlier to allow enough time to adequately cover risks and ensure the correct policy wording.
“Current processes are likely to be inadequate to capture the extent of information the new act requires, so brokers will have to revisit these.
“Clients should ask their brokers how they intend to meet the requirements of the changes in order to ensure they’re not inadvertently left with insufficient cover.”
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