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Since the pandemic hit the numbers of businesses going into administration, receivership or declared insolvent has increased hugely. In 2022 the numbers were at a level not seen since the financial crash of 2009.
When applying for insurance, insurers will need to know about a policyholder’s financial history to determine whether they accept the risk at all or apply conditions in order to do so.
It is vital that when asked by your broker about previous CCJs, personal bankruptcies, insolvencies and the like you disclose anything that might be relevant to the acceptance of the risk and granting of cover. When claims occur, it is normal practice for an insurer to carry out financial checks. Should such checks reveal past discrepancies that were not previously declared this could have serious repercussions. In such circumstances an insurer may have the right to apply retrospective terms and conditions, add extra premium, refuse to pay the claim and even void the policy.
It largely depends on the particular insurer’s terms of acceptance so, should their attitude to moral hazards of this nature be that they would not accept the risk under any circumstances, then their remedy would be to void. This would mean the claim will not be paid and any previous claims they may have already settled could potentially have to be reimbursed. They would usually return premiums paid in this situation, but they are entitled to retain premiums too.
As you can see this is an area of major concern for my team and we make no apology for taking a little more of our clients’ time to go through a thorough fact finding or review process. If we are speaking to a decision maker, we want to be sure that person also knows the full details of the business including the history of the fellow directors as this is often where policyholders fall down by assuming nobody on their board has any skeletons in the cupboard. Knowledge of the business being discussed may be there but so often the insolvency or CCJ relates to another company a colleague was on the board of and this will come out later, usually at the worst time possible.
We ask our existing and prospective clients is to be vigilant when answering these declaration questions. If there is any doubt it is far better to halt proceedings and come back to us after making enquiries than to plough on hoping all is well. If we know about anything at renewal or inception it does give us the chance to speak to insurers who have a more sympathetic attitude to previous financial indiscretion and place the risk with full disclosure and peace of mind. If there is any doubt whatsoever about what needs to be mentioned it is better to mention all and let us, as your broker, decide whether it is relevant or not. Please do not hesitate to click the ‘Contact me’ button on my bio for further information.
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