Business

Insurance transparency: duty of disclosure and material facts

The duty of disclosure is the foundation of transparency in business insurance and ensures clients are asked a set of questions around several key areas like previous insurances, criminal convictions, financial history and more
The duty of disclosure is the foundation of transparency in business insurance and ensures clients are asked a set of questions around several key areas like previous insurances, criminal convictions, financial history and more

THERE is a pivotal principle that underscores the relationship between business insurance policyholders and insurers – the duty of disclosure.

This ethical duty compels those seeking business insurance to divulge every material fact or circumstance about the risk, whether known to them or reasonably should be. This encompasses a range of details, from prior insurances and criminal convictions to bankruptcy and more.

But what exactly does the duty of disclosure entail, and why is it of such paramount importance?

The duty of disclosure is the foundation of transparency in business insurance. It ensures that clients are asked a set of comprehensive questions. These questions revolve around several key areas, including previous insurances, criminal convictions, financial history, and more.

They include questions about policy history including cancelled policies or refused claims and even special terms imposed on a policy by previous insurers.

Other material facts could be criminal convictions, including fraud, theft, arson, or other offences while insurance fraud should also be disclosed.

Financial stability is a priority for insurers and the policyholder has a duty to disclose any financial history, including bankruptcy, insolvency, liquidation, or similar legal procedures in the last five years that could be seen as a risk.

These questions are crucial as they provide insurers with essential information to assess risk effectively. Failure to disclose such incidents, if relevant to you or any of your directors, can lead to policy invalidation, potentially risking the approval of future claims.

The duty of disclosure is, thus, an essential safeguard for both insurers and policyholders. It ensures that the insurer has a complete picture of the risk, enabling them to offer the right coverage and terms.

It is critical that policyholders comply to this element of taking out insurance not only to enable you to secure conclusive insurance, but it can prevent claims from being denied, causing financial setbacks. It also maintains the business's reputation and demonstrates integrity and trustworthiness.

There are some misunderstandings and misconceptions about the duty of disclosure, including making assumptions about other directors or officers within the business.

However, the duty of disclosure applies to all individuals involved in running a business. Even seemingly minor details matter. Simple omissions can affect policy coverage.

Insurance brokers play a vital role in guiding clients through the intricacies of business insurance policies. They serve as intermediaries between business owners and insurers, offering expertise and guidance. Brokers help clients by asking pertinent questions and helping clients understand disclosure questions accurately.

An insurance broker can also educate clients about the consequences of non-disclosure, creating awareness of the associated risks and ensuring that no material facts are left undisclosed. They can also match clients with insurers offering suitable coverage tailored to their business needs and risk factors.

It is important to note that the duty of disclosure extends beyond business insurance to all insurance policies, from personal to professional. This obligation ensures that insurers assess risks accurately, based on a policyholder's background.

In summary, the duty of disclosure is the cornerstone of trust and transparency in the insurance world. It is an ethical responsibility that business owners must uphold to safeguard their interests in the long run.

Understanding and adhering to the duty of disclosure can lead to the right coverage, smooth claims processing, and a solid reputation in the business world - and insurance brokers serve as valuable allies in this process.

:: Donna Vaughan is account executive at AbbeyAutoline (www.abbeyautoline.co.uk/business-insurance)