IPTM8145 | Significant variation: how and when variations occur

A variation of an insurance policy is a change in the terms of the policy that falls short of a fundamental reconstruction – see IPTM8110. The policy after variation must be tested to see whether it continues to qualify. The tests that are applied are the same as those applied to a new policy issued in substitution for an old policy (ICTA88/SCH15/PARA18) - see IPTM8120 to IPTM8130.

Variation of a policy

The terms of a policy can normally only be varied by explicit agreement between the insurer and the policyholder or a person acting on behalf of the policyholder, and the insurer should get written acceptance of the variation from the policyholder. It cannot in general be assumed that the variation is accepted simply because the policyholder does not respond. An exception is where a policy is varied as part of a court-approved process, for instance a scheme of business transfer between insurers under Part VII Financial Services and Markets Act 2000, or a compromise between policyholders and insurer under sections 895 to 901 Companies Act 2006.

However, it is possible for the conditions of a policy to change without there being a variation in the terms of the policy if the terms allow it. An example might be where the policy provides for adherence to external codes of practice, for instance from the Association of British Insurers, and those codes change from time to time. Ultimately, however, whether there has been a variation in the terms of a policy is a question of contract law.

Date of a variation

The date of a variation follows the principles of contract law and will normally be the date that the party receiving the offer of a variation accepts that offer. The effective date of a variation may be backdated by up to three months for the purpose of testing whether the policy is qualifying, in exactly the same way as the date on which a new policy is made - see IPTM8045.