How to maximise your business insurance protection

Business insurance is a financial safety net that can shield your company from unexpected events which could otherwise lead to significant losses.

Now, more than ever, it is important to make sure your business is protected against the relevant risks – be it supply chain disruption or product liability claims – to ensure you can focus on the day-to-day.

Below are our top tips for avoiding pitfalls with your business insurance and maximising your protection:

Understand your risks

The purpose of insurance is to protect your business from risk if the worst should happen. All businesses and activities have risks attached to them, but these risks vary in importance and differ depending on the size and nature of the business.

Companies can buy insurance for a vast range of risks, from the obvious – property and general liability – to more niche products such as cyber protection and directors’ and officers’ cover.

Before you can effectively protect your business, you need to identify the key risks your business faces. You have to consider which risks would have a profound impact on your business, how likely they are to occur and how catastrophic the impact would be.

Recently, we have seen an increasing number of businesses that believed they had robust insurance arrangements in place, but later learnt – often as a result of a claim – that key risks to the business were left uninsured.

Provide accurate details about the business

Policyholders have a statutory duty to make a fair presentation of risk to their insurer. What this means in practice is that when arranging insurance cover, businesses have to disclose material information that affects business risk, such as:

• The business’ activities carried out by the company
• The location and condition of business premises
• Whether there are any special or unusual facts relating to the business
• Which locations the business operates in, for example whether it is UK-based or operates worldwide
• Previous claims made against the business or previous insurance policies
• Any particular concerns which led the policyholder to look to take out the insurance in question.

If a business does not provide accurate information, or withholds important details, the insurer may be entitled to vary the terms of the policy, charge an additional premium, refuse to pay out on a specific claim, or void the policy entirely.

Whilst providing this information to the insurer may seem onerous, it will not only help to ensure your business has appropriate cover in place, but also reduce the risk of an insurer declining cover in the event you seek to claim under your policy.

This duty of fair presentation is an ongoing obligation. If there are any changes to your business which might influence the insurer’s perception of your business risk, you must make them aware as soon as possible. Common examples include: changes to shareholders, expansion into a new market or significant changes to industry standards.

Complying with policy conditions

Insurance policies, like any contract, will include conditions you must comply with as the policyholder.

In order to ensure your business is able to claim against your insurance policy, it is essential that you understand the conditions set out within your policy and what your business needs to do to comply with them.

If an insurer can establish a condition has not been complied with, they may be entitled to avoid paying out in the event your business claims under the policy.

For example, your policy may contain a condition precedent which requires “all doors and windows to be fitted with locks and the premises to be secured outside business hours”. If a theft occurs outside business hours, but an employee accidentally left the premises unlocked, the insurer would likely decline to cover any claim arising from that theft on the basis that a policy condition had not been complied with.

It is also important for businesses to identify who within the business is responsible for complying with a condition precedent. We often see instances where the actions and decisions taken by employees impact on a business’ ability to claim under its insurance policy.

Taking the above example, the breach of the condition precedent occurred when the employee left the premises unsecured; it did not occur at board or even management level. It is therefore critical to identify who within your business must comply with a condition, make them aware of this responsibility and make it clear what they must do to ensure they comply with the condition.

Reviewing policy terms

Businesses constantly readjust to their surroundings, adapt to changes in the market and evolve as they become more successful. This means that policyholders should regularly review insurance policies to ensure they remain fit for purpose and match the risk profile of the business.

If you wait to look at your policies until a claim is made and you find gaps, it may be too late and your insurer could be entitled to avoid paying out under the policy.

Key takeaways

Maximising business insurance protection involves a strategic approach, tailored to the unique risks and needs of a business.

By understanding the risks, implementing appropriate coverage and complying with policy conditions, businesses can safeguard themselves against potential financial setbacks or out-of-pocket claims.

If you wish to learn more about this topic, members of our Insurance and Risk team recently recorded a webinar on this topic, which is available online.