In the complex landscape of commercial insurance, securing a full and timely payout of a claim is paramount for business continuity. However, a significant number of claims face reductions or outright rejections. This article delves into the top 10 reasons behind reduced or denied claims and provides actionable insights to safeguard your business and ensure your insurance coverage delivers when it matters most.
1. The Peril of Underinsurance: Accurate Valuation is Non-Negotiable
Underinsurance stands as a leading cause of claim disputes. It occurs when the insured value of your assets, particularly buildings and machinery, falls below their actual replacement cost. The consequences are severe and will potentially leave your business significantly underfunded during a critical recovery period.
Industry statistics highlight the prevalence of this issue. Data indicates that a substantial majority of commercial buildings are underinsured. This alarming figure underscores the necessity for regular and accurate valuations.
Mitigation Strategies:
- Professional Valuations: Engage professionals. Employ qualified surveyors or valuation experts to assess the current reinstatement cost of your assets. Opt for comprehensive valuations that consider factors such as construction costs, materials, and labour.
- Regular Reviews: Conduct annual reviews of your insured values to account for inflation, market fluctuations, and any changes to your assets.
- Specialist Broker Support: Partner with an insurance broker who can facilitate discounted valuation services as well as provide expert guidance on appropriate coverage levels.
2. The Impact of Loss Adjuster Expertise and Independence
The role of the loss adjuster is pivotal in the claim settlement process. An inexperienced or conflicted adjuster can significantly impede a fair and timely resolution.
Key Considerations:
- Experience and Specialisation: Seek loss adjusters who have proven expertise in your industry and in the specific type of claim.
- Independence: Ensure the loss adjuster operates independently and prioritises your best interests.
- Clear Communication: Communication is always important. Maintain open and transparent communication with the loss adjuster throughout the process.
3. Adequacy of Business Interruption Cover: Planning for Extended Recovery
Business interruption cover (BI) is designed to mitigate financial losses resulting from operational disruptions. However, many businesses underestimate the time required for complete recovery from any incident whether cyber, fire, flood or other.
Factors to Consider:
- Recovery Timeline: Assess the potential duration of business disruption, considering factors such as supply chain disruptions, rebuilding timelines, and customer retention.
- Coverage Period: Opt for a sufficient coverage period, typically 24-36 months, to allow for full restoration of pre-loss trading levels.
- Accurate Turnover Projections: Ensure your BI cover accurately reflects your projected turnover and profit margins.
4. The Importance of Full and Honest Disclosure: Transparency is Paramount
Non-disclosure of material facts can invalidate your insurance policy. Material facts include any information that could influence an underwriter’s decision to provide cover.
Disclosure Obligations:
- Adverse Financial History: Disclose any past County Court Judgements (CCJs), insolvencies, or adverse directorships.
- Criminal Records: Declare any relevant criminal convictions.
- Risk Profile Changes: Inform your insurer of any changes to your business operations, risk profile, or premises.
5. Demonstrating Insurable Interest: A Fundamental Requirement
Insurable interest signifies a financial stake in the insured property. Without it, your claim will be deemed invalid.
Key Principles:
- Ownership or Financial Responsibility: Ensure you have a legitimate financial interest in the property or asset being insured.
- Documentation: Retain documentation that substantiates your insurable interest.
6. Avoiding Misrepresentation of Risk: Accuracy in Policy Information
Misrepresentation, even unintentional, can lead to claim denial. The Insurance Act demands utmost good faith in providing accurate information.
Risk Disclosure Best Practices:
- Detailed Risk Assessment: Conduct a thorough risk assessment of your business operations and premises.
- Accurate Information Provision: Provide accurate and comprehensive information to your insurer regarding your business activities and risk exposures.
- Specific Risk Disclosure: Highlight any unique or non-standard risks, such as specialised manufacturing processes or hazardous materials.
7. The Critical Role of Supporting Documentation: Maintaining Comprehensive Records
Claims can be rejected due to a lack of supporting documentation.
Documentation Requirements:
- Safety Certificates: Maintain up-to-date safety certificates, such as electrical safety certificates and fire safety assessments.
- Financial Records: Retain accurate financial records, including receipts, invoices, and sales records.
- Inventory Lists: Keep detailed inventory lists of assets and stock.
- Photographic Evidence: Document the condition of your assets and premises with photographs.
8. Understanding Declared Value vs. Sum Insured: Navigating Policy Nuances
Many building insurance policies utilise both “declared value” and “sum insured.” Confusion surrounding these terms can lead to inadequate coverage. Let us help you with this.
Key Distinctions:
- Declared Value: Represents the accurate value of the building on the first day of the insurance period.
- Sum Insured: Includes an allowance for inflation throughout the policy period.
- Accurate Declared Value: The sum insured is only adequate if the declared value is correct.
9. Adhering to Security Warranties: Compliance is Essential
Security warranties are specific conditions in your policy that must be strictly adhered to. Breaches can result in claim denial.
Warranty Compliance:
- Alarm System Standards: Ensure your alarm system meets the required standards and is regularly maintained.
- Security Measures: Implement and maintain all specified security measures, such as locks, CCTV, and access controls.
- Documentation: Retain documentation that confirms compliance with security warranties.
10. Emerging Exclusions: Fires Caused by Cannabis Farms
Landlords face increasing challenges due to policy exclusions related to fires caused by cannabis farms.
Risk Mitigation:
- Policy Review: Carefully review your policy to identify any exclusions related to cannabis farms.
- Tenant Screening: Conduct thorough tenant screening to mitigate the risk of illegal activities.
- Regular Inspections: Conduct regular property inspections to identify potential risks.
- Specialist advice: Seek specialist advice from an insurance broker.
Taking action to check the above and proactively addressing these potential pitfalls means businesses can significantly enhance their claim readiness and ensure their insurance coverage provides the necessary protection in the event of a loss. Engaging with a reputable insurance broker is crucial in navigating the intricacies of insurance policies and ensuring your business is adequately protected. That’s the situation you want to find yourself in when the worst happens – adequately covered and able to claim.
If you’re unsure what type of cover you need, our friendly team are on hand to help. We have over 25 years experience of finding specialist cover that’s right for you and your business.
