The new Bill introduces a more modern legal regime, according to HM Treasury, which will benefit both insurers and their business customers by increasing transparency and certainty over the rules that govern contracts between them and reducing the number of legal disputes over time.
The aim is to make British insurers better equipped to compete against their global competitors, some of whom have already introduced more modern legal regimes for insurance, while businesses are expected to benefit by around £100m over the next ten years, as a result of factors such as lower litigation and transaction costs.
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Andrea Leadsom, Economic Secretary to the Treasury, said: "Britain's insurance industry is a major success story, employing over 300,000 people across the country, helping millions of British people and businesses every day and exporting across the globe.
"We want the industry to continue to grow and provide better services to customers, which is why we need to bring insurance contract law into the 21st century.
"The Insurance Bill that the government is introducing today will ensure that Britain's insurers can succeed in the future, while business customers can take advantage of lower costs."
Maurice Tulloch, chief executive of Aviva UK & Ireland GI, said: "At Aviva, we've been pushing for some time for contracts to be easier to understand and provide greater clarity for customers. Underpinning this is reform of insurance law to make it more relevant for today's businesses.
"The Bill is a very welcome development which will deliver significant benefits to both customers and the industry, helping make the UK a great place to do business."
The Bill is the product of recommendations made to the government by the Law Commission and the Scottish Law Commission following eight years of consultation with businesses and insurers. HM Treasury informally consulted on the Bill in June 2014.