When making an insurance claim, there are several reasons why it might be delayed, reduced, or even rejected. To help you avoid surprises, we’ve compiled a list of the top 10 reasons claims may not be paid out in full and how to prevent these issues.
1. Underinsurance
One of the most common issues is underinsurance. It’s crucial to have accurate, up-to-date valuations for your buildings and machinery. Industry research indicates that around 81% of buildings are underinsured. Ensuring your property is correctly valued can prevent claims from being reduced.
2. Non-disclosure
Failing to disclose relevant information can lead to claim denial. This includes details such as previous County Court Judgements (CCJs), adverse directorships, criminal records, or past insolvencies. Providing full transparency to your insurer helps secure your claim’s validity.
3. Lack of Insurable Interest
To make a valid claim, you must have a financial interest in the property you’re insuring. If you do not, your claim could be rejected.
4. Misrepresentation of Risk
Even minor misrepresentations can lead to claim denial under the Insurance Act. For example, if your manufacturing process involves heat but this is not typical in your industry, you must disclose this to your insurer. Any factor that increases the likelihood of loss should be fully communicated.
5. Inadequate Business Interruption (BI) Cover
Selecting the correct duration for Business Interruption (BI) cover is vital. While 36 months may seem excessive, it often provides the necessary time to restore your business to pre-loss levels. Depending on your situation, 24 months may be sufficient, but 12 months is typically inadequate.
6. Lack of Supporting Documentation
Claims can be denied if you lack necessary documentation. This includes electrical safety certificates or receipts for cash sales. Keeping proper records and complying with all regulations ensures your claim can be processed smoothly.
7. Misunderstanding Percentage Uplift/Declared Value Basis of Cover
Insurance policies often include both a “declared value” and a “sum insured” for buildings. The declared value should reflect the building’s worth on the first day of the insurance period, while the sum insured typically accounts for inflation (usually 15-25%). If the declared value is incorrect, your coverage may be inadequate.
8. Breaches of Security Warranties
Security warranties are specific conditions in your policy that must be adhered to. For example, if your policy requires a specific alarm system, failing to meet the standard could lead to claim rejection. Ensure you understand and comply with these warranties.
9. Inexperienced or Indecisive Loss Adjuster
Having an experienced loss adjuster who works in your best interest is crucial for handling significant losses. A knowledgeable professional can help ensure your claim is processed efficiently and fairly.
10. Exclusions for Fires Caused by Cannabis Farms
This is an increasing concern for landlords. Many policies now exclude cover for fires caused by cannabis farms. If you’re a landlord, ensure your policy includes protection against this risk by consulting your insurance advisor.
Final Thoughts
Understanding these common pitfalls can help you take proactive steps to strengthen your insurance cover and minimize the risk of claim disputes or delays. By ensuring full disclosure, accurate valuations, and compliance with policy terms, you can secure a smooth claims process.
We can help
Get in touch with a member of the Insurewise Team to find out how we can help you safeguard your business. Call us on 01733 325555 or email sales@insurewise.co.uk
