Insurance disclosure is a continuous obligation for policyholders to keep their insurer informed about any changes that could affect coverage, not only at the outset but throughout the duration of a policy.
This is according to Hendrik Botha, head of Underwriting at Western National Insurance.
Botha said that for business owners, where circumstances can change frequently, this responsibility is particularly crucial.
“Whether in terms of operations, assets, or business activities, any modifications must be promptly communicated to the insurer. Failure to do so could lead to significant consequences, including denied claims or even policy voidance,” Botha said.
For example, the risk profile of a business can change die to alterations such as relocating a business or expanding the scope of business activities.
According to Karen Rimmer, head of Distribution, PSG Insure, insurance is a fluid financial product that should evolve and adapt to the unique needs of each business as it grows.
If these changes are not disclosed to the insurance company the policyholder may encounter issues if they make a claim, according to Botha.
If a business installs a thatch-roofed entertainment area, it elevates fire risk. If the policyholder does not disclose the new structure, the insurer may decline a fire-related claim or worse, consider the risk not covered.
This means that the business is unprotected and future insurance applications may be complicated.
Botha said: “Moreover, a history of non-disclosure can harm a policyholder's reputation with insurers, making it more challenging to secure coverage in the future, as insurers may perceive them as a higher risk.”
“In severe cases, non-disclosure could render a business uninsurable, significantly impacting its ability to operate.”
Business owners must also disclose historical losses to insurers. In one instance, a business owner who did not disclose a previous major theft when they applied for insurance, had their claim denied after a subsequent theft.
“The insurer argued that had they known about the previous incident, they might have declined coverage, adjusted the premium, or introduced specific risk control measures before accepting the risk,” Botha said.
There may also be legal consequences for non-disclosure may especially if fraudulent behaviour is involved.
Botha said that if a insurance company finds that a policyholder has intentionally misrepresented or withheld information, the insurer may void the policy or deny claims. In extreme cases, the insurer may even start legal action.
According to Botha, disclosure responsibilities go beyond tangible assets to changes in tenants or property use that may have an impact on risk levels.
“For instance, in an industrial office park, a new tenant’s woodworking activities, a higher-risk operation, can alter the risk profile of the entire property,” Botha said.
“If such a change is undisclosed, the insurer might re-evaluate the policy, potentially resulting in coverage gaps.”
Risk surveys are therefore vital to maintain transparency between the insured and insurer.
An initial risk survey is required for every business policy while businesses in higher-risk sectors may need annual assessments and specialised industries like manufacturing, may require even more frequent reviews.
Brokers
According to Botha, policyholders can get support in fulfilling disclosure obligations by partnering with a reputable broker.
“Brokers help business owners understand policy terms and recognise both obvious and subtle risks,” Botha said.
“If a claim is denied, policyholders may have the option to seek recourse through their broker if it can be demonstrated that the broker did not provide sufficient guidance or omitted key questions during the policy initiation or renewal process.”
While brokers play an important role in identifying and managing risks, business owners ultimately know their operations best.
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