In the complex world of insurance, the stakes are high for those who overlook the importance of full disclosure. Failing to inform insurers of relevant changes can lead to harsh outcomes, from denied claims to policies being voided altogether.
For business owners, in particular, whose situations often evolve, the need for proactive communication is critical. Jan Hendrik Botha, the head of underwriting at Western National Insurance, underscores this point: “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.”
This responsibility grows even more pressing as business activities, assets, or operations shift. Botha warns that failing to disclose these modifications can have severe repercussions.
“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.”
Consider a scenario where a company installs a thatch-roofed entertainment area, which increases fire risk. If this addition is not reported, the insurer might reject a related fire claim or worse, deem the risk outside the policy’s coverage, leaving the business vulnerable. This lack of transparency can hinder future insurance applications and potentially tarnish the business’s reputation with insurers.
“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,” Botha explains.
Historical incidents should also be on the disclosure list.
“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 if they had known about the previous incident, they might have declined coverage, adjusted the premium, or introduced specific risk control measures before accepting the risk,” Botha says.
Legal consequences are another potential pitfall. Intentional non-disclosure or misrepresentation can lead to voided policies, denied claims, or even legal action.
“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,” he notes.
The scope of disclosure extends beyond the tangible, encompassing changes in property use or new tenants whose activities might affect risk.
“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,” Botha says.
To bridge these gaps, initial and ongoing risk surveys are vital.
“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,” he adds.
Brokers can be instrumental in helping policyholders navigate these disclosure responsibilities.
“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,” Botha says.
However, Botha adds that although brokers play an essential role, the ultimate responsibility lies with the business owner.
“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.”
