Introduction to Material Facts & The Market
Over the last couple of years, insurers have moved away from 20 years of “soft market” conditions where we saw low rates, high limits of indemnity and flexible policy wordings with substantial extensions and wider benefits.
We are currently in a “hard” insurance market where insurers are no longer able to absorb increasing claims frequency and costs. This had been driven by the rising frequency and severity of weather events and the changes to the Ogden Discount Rate which has significantly affected the costs of serious liability claims.
In addition to the above, we now have extraordinary inflationary pressures with higher prices, challenges with supply chains and increasing labour costs which all rises claims costs to the insurers.
The impacts of this include rising premiums, higher policy excesses, insurers being selective in the risks they choose to insure or applying restrictions in the cover provided to reduce their exposure.
Another impact we often see in a hard market is claims management becoming much stricter in the application of the policy wording. During a soft market, insurers often take a much more lenient approach to claims payments and the application of policy conditions
It is therefore very important that policyholders understand their obligations to insurers and that they fulfil them.
Duty to Disclose Material Facts
Anyone purchasing insurance has a duty to declare all material information, facts and circumstances which an insurer would need to be aware of when they are deciding on what premium to charge but also whether they would like to provide the cover you require.
In the event you fail to disclose key information whether innocent or not, insurers have a legal entitlement to avoid a policy where they can demonstrate they wouldn’t have provided cover had this information been available. The insurer can take an alternative decision to pay a claim if they would have provided cover but at an increased premium however they would expect the policyholder to pay any difference in costs.
It’s important to be aware this duty applies when requesting a quote and at each subsequent renewal, but you must also declare any material changes should they occur during the period of the policy.
Examples of Material Facts
Here are a few examples of material facts that must be disclosed to your insurer. Please note this is not an exhaustive list. If you’re ever unsure if something must be disclosed you need to speak to your insurance advisor and if in doubt disclose.
The Business History
Details of:
- Any CCJ’s served
- Any insurance previously refused or special terms applied.
- Prohibition, Enforcement or Improvement Notice/Order by any regulatory bodies, including (but not limited to) HSE.
The people who run the business
- Any adverse financial history such as any Director having been involved in another business that was declared bankrupt or insolvent or been the subject of a CCJ.
- Any Directors or Partner have been convicted of or charged (but not yet tried) or been given an Official Police Caution in respect of any criminal offence, other than a motoring offence unless spent by the Rehabilitation of Offenders Act
In respect of the above sometimes the contact with the insurance advisor isn’t aware of the facts as we appreciate this can be sensitive. However, they still have a duty to ask the questions of all relevant parties to fulfil the duty of full disclosure.
Change of ownership
It is often misunderstood that when a business sells their entity they do not need to advise an insurer of this change. This is not correct as the insurance contract is severed and a new contract needs to be set up. You would not buy a house and expect to retain the previous owner’s property insurance, it’s the same for commercial cover.
The insurers agreed to provide insurance cover for the previous owners knowing all the relevant facts. If the new owner for example had a past bankruptcy then the insurer has the right to decide if they want to provide cover going forward.
Changes to your business or premises that need to be disclosed:
- You amend your corporate structure or add a holding company
- The premises is no longer trading and becomes unoccupied
- You’re operating from an additional location such as an Out of School Club at a school
- You are undertaking building works
- You bring in new activities such as baby sittings, overnight stays
Just remembered something?
If whilst reading this article you have thought of something you might need to tell your insurer, it’s best to give them a call to talk it through. Your insurance advisor will help you through with updating the insurer but make that call as soon as you can.
Finally, don’t forget to revisit all the information you tell your insurer regularly and have that conversation with your team about their finances if you don’t know already.