We continue to live in uncertain times, with the latest announcement from the Prime Minister Boris Johnson further demonstrating that we are still far from returning to business as usual. There also continues to be restrictions in Wales as announced by First Minister for Wales Mark Drakeford, in Scotland as announced by First Minister for Scotland Nicola Sturgeon and in Northern Ireland as announced by First Minister Arlene Foster.
During these difficult times, many individuals and businesses are finding themselves in financial difficulty as they struggle to continue to adapt to the ever-changing environment and as a result, are understandably reviewing outgoings; including reducing insurance cover and in some cases cancelling insurance policies.
While this can be seen as a short-term solution, the long-term impact has the potential to be devastating, which is why we have outlined some of the changes you could make, and those you should not, to avoid leaving yourself personally liable for a loss where an insurance cover would assist.
1. Cancelling liability cover
Unless you are no longer trading or have decided to close your business permanently, you should not leave yourself without any insurance protection. While it maybe the case that you are not currently carrying out your usual business, there is still a risk, particularly for those policies that include any aspect of liability cover (public, professional, products or employers). Often you will have protection that is provided on a claims-made, or claims occurring basis.
A claims-made policy will pay out for any valid claim made during the policy period, regardless of when the incident took place, providing you had cover in place at that time, in other words the policy has to be ‘live’. Depending on the retroactive date of the policy, it could mean you are covered for claims made during the policy period which arise from work you have done over many years. If you cancel this policy, there are some serious consequences:
- You would likely lose all historic cover, leaving you without any cover for incidents that may have already occurred, even if you’re not aware of them yet
- Historic cover may not be replaced when reinstating the cover in the future
- If you do not have a live policy in place and an incident is reported to you, regardless of when the incident took place and whether cover was in place at the time, it will not be covered
A claims-occurring basis policy will only pay out for claims where the incident actually took place during the policy period, but this could be something that doesn’t come to light until much later.
It is really important you understand what basis your policy is provided on, to understand how cancelling this cover could impact you, but on both basis’ simply cancelling cover without arranging run-off cover can result in you being left exposed should a claim come to light in the future. Speak to your usual Towergate Insurance Brokers advisor if you need to discuss this further, or email TIB@towergate.co.uk.
2. Cancelling buildings and contents cover
We understand that many business premises will be unoccupied for a period of time as a result of the restrictions in place from 5 November 2020. Rather than the risk decreasing while the building is not being used, it actually increases due to the property not being used. We see more claims for fire and water damage in unoccupied properties, as early warning signs are not spotted and dealt with as quickly as when the building is occupied. In the majority of Landlords or Building Owners policies, in addition to the building itself, there is cover to protect you against claims from members of the public who might be injured due to your ownership of the property. In the event you cancel cover on the property, the liability remains and will rest with you regardless as to whether the policy is cancelled.
. It is therefore essential this cover is not cancelled to avoid you being personally liable for a loss that you would have to fund yourself without insurance protection in place.
In addition to this, cancelling this insurance cover could result in you being in breach of a loan agreement, mortgage or banking covenant. In certain cases, where an interest is noted on your policy, we would have a duty to inform the interested party of the cancellation.
3. Cancelling other types of insurance cover
In your overall insurance portfolio, there may be other policies that you have been advised to take out to provide you with the best possible protection to meet your requirements. These policies may include:
- Credit insurance
- Cyber insurance
- Environmental Liability insurance
- Health, Protection and Employee Benefits insurance
- Intellectual Property insurance
- Legal expenses
- Management Liability Portfolio (MLP) insurance
- Personal Guarantee insurance
- Product recall insurance
- Terrorism and Political Violence insurance
- Warranty and Indemnity insurance
- Engineering Inspection covers
Further information about all of these policies can be found on our website.
You may also benefit from some of our additional services such as Health, Protection and Employee Benefits, Legal Expenses or Management Liability Portfolio (MLP) insurance, more detail on which can be found here.
If you are considering making any changes to your insurance portfolio, you should always get advice and support first so you fully understand the impact of any changes made, both now and in the future. For example, some policies may not be able to be replaced as new business in the future due to us being in a hardening market, which could result in you being without cover you need indefinitely, even after business has returned to some form of normality. To discuss the impact of cancelling any of these policies, speak to your usual Towergate Insurance Brokers adviser or email TIB@towergate.co.uk.
4. Making changes to insurance cover
Whenever there are changes to your business, you should always take the opportunity to review your insurance cover. Some key things in particular you should review are:
- Gross profit and revenue – your annual gross profit and revenue may have been impacted by the Coronavirus crisis, so this may be a good opportunity to review it. It is important to remember that once your financial performance returns to normal levels, you should review it again to ensure you’re not left underinsured or without cover you need.
- Business activities – if as a result of the crisis you have made changes to the activities of your business, either through diversification or an inability to carry out usual activities, you should inform your broker who will be able to make the necessary changes to your policy to ensure you have adequate protection.
- Unoccupancy clauses – typically business premises insurance will have a clause for unoccupancy, in terms of the number of days it can be unoccupied for and steps that should be taken while it is. You should check this information and speak to your broker, who will be able to advise you on steps you should take to ensure you’re meeting your insurers’ requirements.
- Working from home – if your business is as such that you and your employees are able to work from home, as per the Government guidance, you and they should check that the work being conducted is covered under the home insurance policies you have in place. Typically, home insurers will provide cover for administrative work being done from home, but may require additional cover to be in place should you be doing any form of manufacturing, storing of business-related items or seeing clients from your home. You should also check your business has Cyber covers in force in case your company data is exposure whilst employees are working from home
5. Consider additional business risks faced during periods of lockdown
Regardless of the current restrictions that are in place in the different countries of the UK, or whether there is a return to a regional approach in the future, there may be times that your business cannot operate as usual, particularly if your employees are able to work from home. With this brings new challenges and risks faced.
Notably, there is a higher risk of your business suffering a cyber attack when you have a remote workforce, as protection is weakened. Therefore, Cyber insurance has an important role to play in the Coronavirus crisis. In addition, the new responsibilities placed on employers, and in particular directors and officers, to provide a Covid safe working environment has resulted in an increased need for protection for them around the decisions being made. It is therefore important to be alert and protect your directors and officers.
Next Steps to take in making any changes to your insurance cover
The main takeaway is that if you are considering making any changes to your insurance cover, or your business has made any changes to deal with the ongoing crisis, you should always speak to your usual Towergate Insurance Brokers advisor before making any decisions. This is the best way to ensure you’re not making changes that could have a detrimental effect on your business in the short and long term. The current environment may also result in a need for you to take out additional protection that you may not have needed before, so it’s important to discuss this with your usual advisor too.
If you are facing financial difficulties, please contact us and we will do our best to provide some manageable support. There are options to help you manage the cost of insurance without leaving yourself vulnerable by being without cover, including:
- Paying your insurance premiums in monthly instalments through finance agreements
- Increasing excess amounts and periods
- Considering indemnity periods
- Conducting quarterly reviews of cover on items such as stock
- Reviewing Indemnity v Reinstatement
- Considering First Loss and/or Reinstatement in modern materials
- Agreeing mid-term refunds if possible based on vehicle and wage roll declarations
- Asking for payment holidays/deferrals
- Before instructing your broker to cancel or reduce cover, check with them first about the actual return of premium or saving you anticipate. It is commonplace for Insurers to impose ‘short period rates’ which would mean the refund, after possible application of fees, and deduction of any claims, may not be as much as anticipated.
Further advice and guidance from us on dealing with the new Covid restrictions can be found here:
- Important considerations if your premises are unoccupied
- Mental health support for employees
- New RIDDOR reporting of COVID-19
- Tips for managing and engaging remote workers
- Homeworking health and safety
Much more, including sector specific guidance, can be found on our COVID-19 hub.
Speak to your usual Towergate Insurance Brokers adviser if you need to discuss this further, or email TIB@towergate.co.uk.
About the author
Mark Brannon Cert CII is a respected industry leader with over 17 years’ industry experience in a variety of roles within the business insurance sector. He works across a wide spectrum of insurance product and policy development, delivery and optimisation for clients, including claims, insurer relationships, marketing and communications, and risk management.
The information contained in this bulletin is based on sources that we believe are reliable and should be understood as general risk management and insurance information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such. If you wish to discuss your specific requirements, please do not hesitate to contact your usual Towergate Insurance Brokers adviser.