What is the dirty little secret of Insurance?
There are hidden clauses that loom large in policy documents and some are more sinister than others. Here I explain what the secret is, why it is dirty and how it’s still a secret.
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What is insurance companies dirty little secret?
The insurance market has a reputation of escaping from legal contracts using small print.
When businesses have a dispute they often seek legal recourse. The complainant will sometimes have insurance to cover such disputes. They ask their insurer to cover the cost of taking action yet policies prevent insurance buyers from taking action against insurance companies. Not much help if an insurance company has refused to honour the policy they issued.
Insurers do not make this clear. It’s difficult enough when commercial disputes arise, it’s galling to find that you have been given a false impression by the people you had invested in. Insurers paying claims want to reduce the most obvious or exclude them. It’s unfair when the exclusion prevents you taking action against a supplier that has obviously got something wrong – as is often the case when claims are badly handled. But for insurance companies to close ranks in this manner, that’s pretty low. Whatever their reasons.
Why it is dirty?
Because it’s industry wide, it’s tantamount to a cartel. Have all insurers secretly agreed that they will support claims against any industry except their own? If not, why hasn’t an entrepreneurial insurer stuck their head above the parapet and issued a policy that covers taking such an action?
Insurance disputes are common and it’s not always the broker that makes a mistake. Insurers are often culpable yet it costs almost £20,000 to take action against them. That is bad for UK business. Of course, it could be down to the fact that the insurance actuaries have worked out that insurers nearly always win cases. I suspect this is because complainants often run out of money to fund their legal case. If I’m right the figures will always be skewed.
Why it’s a secret?
I doubt if insurance companies place this exclusion at the back of their policies by accident. It’s not front and centre as you would expect such a sweeping exclusion to be.
There are other secrets in policies that are difficult to unearth and comprehend. Yet the dirty little secret of not allowing your client’s to take action against your competition is the most sinister show stopper.
Wrap up: Insurance companies do not pay claims when the insurance contract between them and their policyholder has been breached. If they refuse to pay a seemingly valid claim policyholders need to dig deep to ensure they get what is due to them.
Top Tip: Spend time assessing the key risk to your business and make sure you understand your insurance policies which are legally binding contracts. Make sure that important contracts and agreements are not excluded from your policies.
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Accountants insurance is changing
Accountants indemnity changes 1st September
I thought you might be interested to hear about the new rules for accountant’s professional indemnity. Here I explain why it’s important to make an early report of claim circumstances, where problems with timing could occur plus a clear definition of what should be reported.
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Why should I report a minor concern?
Some policyholders believe that premiums go up if they report scenarios that are not really claims. If they don’t report a “circumstance” it proves to be a false economy. When the rules change it’s even easier to make a costly late notification.
Claims don’t happen often yet the early warning signs are common. Questioning fees, complaints about service and a lack of communication are typical indicators that a client or third party may become litigious. Especially if they don’t get their own way.
Have the new ICAEW rules made it clearer?
The new wording applies to cover effected on or after 1st September 2010 and makes it clear that claims can and will be declined if “circumstances” are not reported before the expiry of a policy. The intention is to ensure that insurance companies are aware of possible claims before the policy expires.
There is no longer a wishy washy wording – previously insurers refused claims notified later than they would like. This was despite the policy being on a “claims made” basis meaning claims made after the expiry would be covered if the work was completed during the period of cover. The terms of notification were not clear.
Now, possible claim circumstances not reported within the policy period will not be covered. Period.
What is a circumstance?
Definitions in policy wordings can be subtly altered without the policyholder noticing. Insurance contracts are full of detail. A “circumstance” is anything likely to affect the underwriters view of the risk. That doesn’t mean all complaints should be reported.
It’s ridiculous to report all complaints so ask your insurance supplier to interpret what is termed reasonable by your insurance company. There is no need for the new rule to result in more red tape. The fact that I’m writing about it means it probably will at the change is embedded into the policy wordings. That is not the intention, it’s just the devil is in the policy detail. We all want claims settled promptly and correctly.
Wrap up: Attempts to make policies clearer add to confusion. Indemnity policies have strict timescales for reporting claims or circumstances. Guidance on what a circumstance is should be sought before a policy expires, ie. before the renewal date.
Top Tip: Uncertainty is not good for anyone. Ask your insurance supplier for clarification of expiry dates, notification deadlines and clarify what “circumstances” are real in your World.
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You don’t want insurance companies to pay fraudsters – especially if they’re using your premium
Have you contributed to Madoff’s legal defence costs?
Not all insurance disputes should be won by the insured, especially if they are fraudulent.
Usually I’m furious when I hear that an insurance claim has been declined. This time I was pleased; Lloyd’s of London successfully defended themselves in a US court when Madoff tried to appeal that Lloyd’s were wrong to cut off the funding of his defence costs.
Lloyd’s had already parted with $4million whilst the legal eagles prepared their cases. They pulled the plug after one of his cohorts pleaded Read the rest of this entry
Professional Indemnity Insurance – Discover how to avoid losses
Professional advisers are not always protected by their insurance
Want to know why some indemnity insurance claims are declined? I have two examples of claims being declined, one more extreme than the other, yet both prove small errors can prove costly. And I’m going to tell you why they were declined and how to avoid it happening.
The first is the most recent, only a few months ago an insurance company refused to cover a claim for a company that was being sued for £47,000. The claim related to an incident that occurred in July 2005 when they had translated a document (allegedly incorrectly) yet it would have been covered if the insurance company had been made aware of it earlier. Read the rest of this entry
Discover how your business network can help your clients
Your network can help you keep clients as well as find new ones
Here’s a simple way to add value to your product or service.
From time to time your clients will reach the limit of your product or service. With a good sales and marketing process you will have already set the parameters of where those lines are drawn. However, you can add value if you have worked out who can help your clients where you can’t. Read on for examples. Read the rest of this entry
Business Insurance has a hidden weakness – does your policy protect you properly?
Insurance claim departments are taking a hard nosed approach – make sure you’re covered
I recently heard about three businesses who have been robbed of £250,000 assets and their company insurance is not paying out. Today, I heard about another case of a business getting caught out and insurers used terrible judgement to decline the insurance claim. I am trying to use the information superhighway to show you how to ensure this doesn’t happen to you or people you know that run businesses.
The scene of the crime
Criminals have been climbing into manholes and cutting telephone lines at targeted premises. This triggers the alarm and Police and a member of staff attend the premises. There’s absolutely no evidence of a break-in so the Police and staff withdraw. After everyone has left the premises are then broken into yet the alarm doesn’t sound because the lines have already been Read the rest of this entry
