How to avoid being uninsured by mistake
14 August 2011, Be Engaged magazine, National Council of Voluntary Organisations
As insurance claim disputes between policyholders and insurance companies are on the rise, Roger Flaxman, managing director of Flaxman Partners (who specialise in insurance dispute resolution) outlines some top tips to consider when placing or renewing your insurance programme.
Before agreeing to pay a claim, insurance companies are looking ever more closely at the policyholder's compliance with policy terms and conditions. Even small inaccuracies or omissions of declared information or minor transgressions of policy terms, conditions and warranties are giving insurance companies the opportunity to refuse, or at best, reduce, cover. Do not underestimate the cost of even a minor disruption.
Understand your obligations
Familiarise yourself with the excellent summary on insurance provided by the Charities Commission. This is the best starting place to begin to understand insurance and the charity's needs to cover its identified risks.
Consider the alternatives to insurance
A good question to ask yourself (or the board) is what alternative is there to insurance that gives a similar level of financial protection and at a lower cost to insurance? Very often there is no obvious alternative, but not always, and this is the beginning of the task of closely examining the real need for insurance and understanding the terms and limitations of the insurance on offer.
What is the cost of a failed insurance?
In the absence of a better alternative to insurance, consider the negative value, additional cost and business interruption consequences of an insurance that fails to pay or otherwise to meet its intended objectives.
Raise risk to board level importance.
Make risk and buying insurance against it a Board of Trustees level agenda item to equate with other key critical events and decisions.
Get others involved in spotting risk.
Create a proper risk profile and seek input from relevant staff across the organisation. The people who do the work are the closest to understanding the risks, so consult the from time to time.
Have a risk assessment programme that is updated annually for the purpose of:
- Understanding your risks as well as you reasonably can - a policy of no surprises.
- Contributing to a sound, fair and reasonable proposal for insurance.
- Reducing the risk of failure to disclose material information.
- Sharing the burden of gathering information.
- Keeping a written record of decisions that are being made.
You also need to ensure that as the risk changes within the organisation the insurers are kept informed. Failure to do this can also lead to a claim being rejected especially where the policy includes a specific requirement to notify changes of material information during the term of the policy.
Separate advice from transaction
Insurance is complex, replete with jargon and pitches the wits of the buyer against the experienced insurers who know exactly the limitations of their product and services far better than the buyer will.
The best investment that a charity can make is to invite an independent, qualified professional insurance practitioner to help it assess and identify its real risks. Every three or four years is usually enough but also if the charity is entering a new area of operation or significant change. Independent insurance and risk professionals who will not sell you a product but will help you buy what you need, can be a priceless asset.
Find out more
Roger Flaxman is managing director of Flaxman Partners, independent insurance claims advocates and professional risk and insurance consultants. For more information about their services visit www.flaxmanpartners.co.uk