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One of the main aims of insurance regulators is to ensure that companies always have a margin of assets over estimated liabilities that is appropriate to the business that they conduct. The majority of insurers, however, will be unwilling or unable to go back to their policyholders for additional payment of losses turn out to be greater than expected. The law on insurance warranties in general is clearly set out in the Marine Insurance Act 1906.

The Act states that warranties must be exactly complied with, whether material to the risk or not. A breach cannot be remedied, but automatically discharges the insurer form liability form the date. By including a basis of the contract clause in the proposal form, the insurer may convert every answer given by the proposer into a warranty. This means that any mistake discharges the insurer from all liability under the contract from the outset, even if the mistake is innocent and immaterial to the risk.