By: Jan Hendrik Botha
Insurance disclosure goes beyond simply checking off boxes when initiating a policy; it 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.
For business owners, whose circumstances frequently shift, this responsibility is especially critical. 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.
For example, alterations such as relocating a business or expanding its scope of activities can change a business's risk profile. If these changes are not disclosed, the policyholder may encounter issues if a claim arises. Take a case where a business installs a thatch-roofed entertainment area, which elevates fire risk. If the new structure is not disclosed, the insurer may decline a fire-related claim or worse, consider the risk not covered, leaving the business unprotected and complicating future insurance applications.
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.
Disclosing historical losses is also vital. In one instance, a business owner who did not disclose a previous major theft when applying for insurance faced a denied claim 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.
Non-disclosure may also carry legal consequences, especially if it involves fraudulent behaviour. If an insurer finds that a policyholder has intentionally misrepresented or withheld information, they may void the policy or deny claims. In extreme cases, they may even initiate legal action.
Disclosure responsibilities extend beyond tangible assets to changes in tenants or property use that may affect 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. If such a change is undisclosed, the insurer might reevaluate the policy, potentially resulting in coverage gaps.
Risk surveys are therefore essential for maintaining transparency between the insured and the insurer. Every business policy requires an initial risk survey, and businesses in higher-risk sectors may need annual assessments. Some specialised industries, such as manufacturing, may require even more frequent reviews.
Collaborating with a reputable broker can support policyholders in fulfilling disclosure obligations. Brokers help business owners understand policy terms and recognise both obvious and subtle risks. 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 a crucial role in identifying and managing risks, business owners ultimately know their operations best. Fully participating in the disclosure process and providing comprehensive information is essential for securing appropriate protection. The more transparent and thorough you are, the better your insurer can assess and cover your risks, ensuring that your business can endure and thrive through unforeseen challenges.
* Botha is the head of underwriting at Western National Insurance.
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