To ensure the survival of the company, Directors have had to react quickly to changing government guidelines and other challenges that the pandemic has brought. Undoubtedly in many cases, a companies risk exposure and ability to absorb loss have changed and therefore the question arises as to the continued adequacy of the companies insurance programme to address the risks that they now face.
We have put together the following point’s directors and business owners may wish to consider when evaluating the continued suitability of their insurance programme, as well as advice relating to how they approach their renewal, in what could be for some professions a challenging insurance market.
The Insurance Act 2015 requires proposers and policyholders to notify Insurers of all material facts that may influence an insurers decision as to whether they will offer terms and if so, on what basis. This duty applies at the time of requesting quotation up to the placement of the policy, at any time amendments are made and at the renewal. The duty of disclosure may also be extended to apply throughout the policy period by way of a policy condition. With remedies available to Insurers for non-compliance including settling a reduced proportion of any claim amount to cancellation of the policy, it is important policyholders are aware of when this duty applies for each policy and notification of material changes are made at the appropriate time.
If a policyholder is unsure whether a fact is considered material or not, our recommendation is to notify the insurance broker as a precautionary measure and take their guidance.
Continued compliance with general conditions
Insurance policies include general conditions which a policyholder is required to comply with. Failure to do so can result in Insurers declining to settle claims. This includes in regards to the un-occupancy of premises and the payment of premium. Where compliance is not possible and before an incident occurs, we’d recommend bringing this to the attention of the insurance broker or insurer and working with them to identify a suitable solution, which is both achievable by the company and acceptable to the Insurers and fundamentally, ensures cover is maintained.
Claims notifications and conduct
Claims conditions can be found in all insurance policies, identifying when Insurers expect to be notified of a claim and circumstances that may result in a claim, as well as how a policyholder conducts themselves following a notifiable event, including not admitting liability, negotiation of any settlement and the appointment of legal representation and other parties. Non-compliance could result in the claim not being covered either partially or in full.
With employees working remotely their supervision may become more challenging, resulting in a failure of management to identify and intervene at the early signs of a potential incident that could develop into a claim and take the necessary actions. Employees who fear their jobs may be at risk may also be inclined to cover up or try to fix errors themselves. It is therefore crucial directors are aware of their duties in regards to notification of claims, relaying on a regular basis to colleagues the importance of reporting issues without there being a fear of reprimand. This will allow any potential claims to be fed up the chain, where decisions can be made as to whether the incident is notifiable to Insurers and the appropriate action that should be taken to ensure the company does not prejudice their cover under the respective policy.
Suitability of existing limits, excesses and indemnity periods
With many companies seeing a reduction in revenue, erosion of cash reserves and reduced ability to source additional funding from other parties, its ability to withstand what previously may have been considered a minor incident, could now threaten the company’s ability to continue trading.
With changes to financial stability, directors may do well to reassess the adequacy of its insurance programmes limits of indemnity and ability to pay excesses, which may be called upon on short notice. Where there are delays in supply chains, this could delay a company’s ability to recover from the incident, meaning the suitability of the business interruption indemnity periods should also be considered.
Changes in risk exposure
The risks a company are exposed to which warrant the purchasing of insurance should also be reassessed. With a greater reliance on technology and the growing threat of cyber criminals looking to exploit these changes for their own financial gain, cyber insurance may now present a worthwhile investment, as could trade credit insurance for those businesses who are reliant on other businesses ability to settle their debts.
Even before the pandemic, we were seeing the hardening of the market in certain classes of insurance, with some insurers withdrawing from writing business and those remaining, reducing the extent of cover they offered and applying increased premiums, all for the purpose of returning the market to a position of profitability after many consecutive years of losses. This was particularly true of professional indemnity and directors and officers insurance.
With the pandemic having a detrimental effect on many different classes of insurance as well as investment returns and insurers concerns as to what is around the corner, we have seen a spreading of this hardening of the market to other classes, with some professions being impacted to a greater extent than others.
To ensure a business is not hit with any last-minute and unexpected surprises, we would recommend engaging with your insurance broker early, at least two months in advance of the policy renewal date. This will allow directors time to understand what is happening in the current market, the expected impact on their renewal and consider alternative options.
Many insurers are now asking far more questions than in previous years, in particular in relation to the effects of the pandemic on the business, both in its operation and finances. With the proposal form and supporting information being effectively a window into a business and seen as a reflection of how the business may conduct itself, it is important that all questions are answered comprehensively and in a tidy manner. Also with many Underwriters trying to meet the demand of the influx of new enquiries arising from policyholders and brokers exploring the market for alternative options, whilst contending with the challenges of working from home, this approach will also assist in ensuring a speedier and positive response from Insurers.
The last 12 months have seen companies having to adapted their businesses to meet the challenges of the new environment, some of which have shown to be a benefit to both the business and its employees and can be expected to remain in place long after the severity of the current situation has subsided. At Islands Insurance, we can assist you in assessing how your insurance needs may have changed and ensure you remain covered for the new normal.