Risk management
Common Insurance Mistakes Small Businesses Make
Most insurance problems only come to light at claim time. These common mistakes are usually simple to avoid with a little attention each year.
By Tasman Insurance Group4 min read
Most insurance problems are not discovered until a claim. By then, it is usually too late to fix a gap or correct an error in the policy.
The mistakes below are common across many types of small business. Most of them are straightforward to avoid with some attention at the right times.
Mistakes when setting up cover
Choosing on price alone
Two policies can look similar on a quote but differ in their definitions, exclusions, excesses and limits. A cheaper policy may be perfectly suitable, or it may leave out something that matters to your business. Comparing the key terms, and not only the premium, gives you a clearer picture.
Underinsuring property
Sums insured are often set once and rarely revisited. If rebuilding or replacement costs rise, the sum insured may no longer be enough. Many property policies include an average or co-insurance clause, which may reduce a claim payment in proportion to the underinsurance.
Describing the business inaccurately
Insurers rely on the description of your business activities to price and accept the risk. If you describe yourself as a retailer but also carry out installations, for example, the installation work may not be covered. Keep the description current as your business changes.
Mistakes during the policy period
Not telling the insurer about changes
Moving premises, adding a new service, hiring subcontractors or buying equipment can all affect your cover. Some policies require you to notify the insurer of certain changes during the period, and not doing so may affect a claim.
Missing policy conditions
Policies often contain conditions you must meet for cover to apply. These might relate to security, such as alarms being set or particular locks being fitted, or to how work is done, such as hot work procedures. Read the conditions in your policy and make sure the people in your business know about them.
Assuming one policy covers everything
Different policies are designed for different risks. Some common misunderstandings include:
- Expecting public liability to cover claims about professional advice
- Expecting a home and contents policy to cover business stock or equipment kept at home
- Expecting a private car policy to cover a vehicle used mainly for business
- Expecting property cover to include flood or loss of income, when these may be optional or excluded
Mistakes around disclosure and claims
Not meeting the duty of disclosure
For business insurance, you generally have a duty of disclosure before the policy starts and at each renewal. This covers matters you know, or that a reasonable person in your circumstances could be expected to know, are relevant to the insurer's decision. Previous claims and losses, and any insurance that has been refused or cancelled, are common examples. If in doubt, disclose it.
Delaying a claim notification
Waiting to see whether a problem resolves itself can be risky. Most policies require prompt notification, and liability and professional indemnity policies may have specific rules about notifying circumstances that could give rise to a claim.
Admitting fault
Agreeing to pay for damage or admitting liability without the insurer's consent can affect your cover under many liability policies. It is usually wiser to exchange details, record what happened and let the insurer manage the response.
A simple routine to avoid these mistakes
A short annual review can address most of the issues above. Consider setting a reminder a month or two before renewal and working through these steps:
- List any changes to your activities, premises, staff, vehicles and equipment
- Check sums insured against current replacement and rebuilding costs
- Read the conditions and exclusions in each policy
- Compare your cover with the insurance requirements in your leases and contracts
- Ask whether there are risks you have not insured, such as cyber or management liability
- Keep a record of what you disclosed and when
If you work with a broker, share these notes with them. At Tasman Insurance Group, we use this kind of information to explain where your cover may fall short and what options are available.
This article is general information only and does not take into account your objectives, financial situation or needs. Before making a decision about insurance, read the relevant Product Disclosure Statement and policy wording, and speak with a licensed adviser about your circumstances.
