A Fair Presentation of Risk
At the heart of insurance contracts is an obvious truth: you have an enormous advantage over the insurer. You know all about your business, its history, processes, people and management, but the insurer knows nothing – other than what you tell them.
You have a statutory duty to make a fair presentation of the risk. You must tell the insurer:
Every material circumstance which you know or ought to know and/or
Sufficient information that would cause the insurer to make further enquiries, if necessary, to review those material circumstances
Information must be disclosed in a manner that is reasonably clear and accessible.
You are deemed to have the knowledge of the company’s senior management.
You are deemed to have the knowledge of the person arranging the insurance (who is deemed to be a senior manager under statute).
Anything that can be discovered by a reasonable search.
A failure to make a fair presentation of the risk gives the insurer various remedies, depending upon the nature of the failure, from avoiding the contract and not paying claims to modifying the basis of settlement.
Examples of Misrepresentation
It is often easier to demonstrate the consequences of risk presentation failure by example rather than theory.
Here are some real life examples of typically forgotten or un-revealed material facts which later caused huge problems and repudiated claims:
Fire A reprocessing plant did not reveal a series of small fires during their insurance year.
Theft Following repeated false alarms, a retailer omitted to reveal that Police Response had been withdrawn.
Water A restaurant omitted to reveal repeated minor floods from an upstairs nightclub.
Liability A construction company omitted to reveal potential employee claims recorded in their accident book.
Motor A telecommunications company failed to reveal written warnings to an employee over repeated careless and dangerous driving.
General A company failed to reveal that it had been ‘struck off’ by Companies House and was trading as a new legal entity under a different designation.
Compiling the Risk Presentation: an ongoing process
It is not possible to overstate the importance of researched, adequate risk presentation – there have been countless legal disputes, repudiated claims, ruined businesses and lives arising from the simple failure to reveal all the facts to an insurer. A failure to present risk adequately is a bigger risk than the risk you present.
It doesn’t matter that the failure is innocent, something overlooked, forgotten or discounted as unimportant – might be important to the insurer, in which case it must be revealed.
Should there be anything not yet disclosed, or that you are unsure would influence your insurers about this insurance…
An insurance policy raises expectations of a certain future – but it’s a highly conditional contract with very clear Behavioural Conditions. The devil is in the detail of the policy conditions. Some of these conditions have historical names like “Warranties” or “Conditions Precedent to Liability”, but what differentiates them from more routine Policy Conditions is making the cover conditional upon a behavioural input from the policy holder.
It is your own behaviour that will determine if that future is available to be claimed.
These conditions cover everything from the removal of waste from the premises, to the cleaning of kitchens, to the height and depth worked on construction sites, the setting of security systems, money transit security and much more.
Their importance cannot be overstated.
“It is a Condition Precedent to Liability that all trade waste is swept up and removed from the premises daily before the close of business. If you fail to comply with this condition any claim or loss or damage associated with such failure shall not be paid.”
Self-evidently this means that any breach of this condition that had an impact on a claim would allow the insurers to avoid said claim, but not the policy as a whole.
On the night of the burglary, the thieves decide to set the rubbish on fire which is piled up inside the building near the rear exit door. Plainly, the breach of the waste policy condition will doubtless result in the insurer not paying your claim.
On the night of the burglary, the thieves break in through the front door, steal laptops and stock, ignoring the rubbish piled up against the rear door. As the breach of the waste policy condition had no impact upon the theft, the insurers will have to deal with your claim.
On the night of the burglary the thieves steal laptops, stock and set the building on fire. As the rubbish is in the locked bin outside, the insurers will pay your claim – unless, of course, you forget to set the alarm.
In every case, compliance with the policy conditions makes life simple.
We have a true passion for reducing risk and ensuring the success of every business we work with by being very aware of the Behavioural Conditions that hold these insurance contracts together, we pride our self on it, so please, pick up the phone today and give us a call.
All commercial insurance policies are subject to an under-insurance clause, known as ‘Average’ The really important point here is that the difference between being adequately insured and under insured is usually only a small amount of premium. The difference in resultant claims settlement can be very significant.
This states that if the sum insured is lower than the value at risk, the Insurers will only pay claims proportionately.
Sum Insured 1,000
x claim £500 = £250
Property Value at risk 2,000
£250 is the amount of the claim payable by the insurer in this example. This is a small example, but it underlines the importance of getting your sums insured accurate.
All policies give a certain period of time in which claims may be intimated – usually between 7 and 30 days, depending on the contract. Some policies demand IMMEDIATE notice and all claim detail presented within 30 days.
This is because:-
Vital information available at the time can quickly become lost/forgotten.
The incident may require immediate investigation by a Loss Adjuster.
The sum insured may have to be reinstated following a loss.
Incidents involving theft, malicious damage, riot or accidental loss must be reported to the Police within seven days.
Most forms of commercial and motor insurances have policy “excesses” or “deductible” incorporated in them. This is to avoid putting premiums up to handle trivial claims, which cost more to deal with than settle. This “excess” or “deductible” is a stated amount deducted from each claim, dependent upon the cover and circumstances.
It is estimated that insurance fraud has cost the industry £1.3bn in 2012. The Association of British Insurers, the Government, Fire Authorities and the Police have joined forces to stamp it out. It is unfair that honest policyholders should subsidise the dishonest, by paying increased premiums.
Insurance fraud is a criminal offence. It does not matter that the fraud happens innocently, perhaps through the mistaken belief that claims should be inflated because they will be cut back by the loss adjuster. It is now common practice for insurers not simply to refuse to pay the claim, they will inform the Police authorities.
Insurance fraud is not a ‘victimless crime’, everyone pays for it in their premiums. By acting in this way, Insurers are hoping to keep premiums down.
We have a true passion for reducing risk and ensuring the success of every business we work with, we pride our self on it, so please, pick up the phone today.