It’s important to get advice on how to safeguard your business effectively as there are a number of areas that often get overlooked. Jenny Hyde, associate director at dot2dot nursery insurance explains.

Did you know that if you don’t accurately disclose your fellow directors’ financial, personal, and previous business history to your insurers, this could significantly affect your business? If your insurer isn’t made aware of key details about you and your co-directors, it may invalidate your insurance policy and reject any claim.

What is considered ‘material’?

According to the Association of British Insurers, a “material fact” is defined as “an important fact about you or your circumstances, that would influence an insurer’s decision on whether to issue a policy and on what terms”. In practice, this means disclosing anything in your and your fellow directors’ history that could affect how the business is run (such as financial issues, criminal convictions or previous business failures).

Insurers don’t always specifically ask for this information and disclosure of these past events are often overlooked by policyholders, who don’t appreciate the information is relevant or material.

What are we seeing as an insurance provider?

Despite the importance of disclosing material facts (which is highlighted on your insurance Statement of Fact and forms part of your contract with the insurer), we’re not receiving as many disclosures, as expected. To provide context, the number of company insolvencies last year was the highest annual figure since 1993. Additionally, the number of County Court Judgments against individuals continues to rise, with a 5% year-on-year increase, though this is a decrease from the peaks of 2021/22. These material facts are not being reflected in our client conversations.

Are all ‘material facts’ damaging to my insurance?

While disclosing adverse financial information may seem daunting, this will not necessarily have a negatively impact on your insurance. When this is disclosed to insurers, they will often ask about the debt that was left outstanding, the amounts involved and whether creditors have been paid. If insurers can understand the reasons behind such occurrences, they will likely accept the disclosure without applying additional terms or charging increased premiums. However, failing to disclose such facts can result in the policy being invalidated and claims being rejected for non-disclosure of material facts.

Case studies: Mr Young’s claim denial

Mr Young filed an insurance claim following a fire, but had failed to disclose previous directorships where the company had become insolvent. Since the insurer could prove it wouldn’t have accepted the risk had they known this, it voided the policy, resulting in the denial of a multimillion-pound claim.

Flood claim refusal

During a flood claim, it was discovered that one of the directors had faced criminal charges as a director of a company in Malaysia the previous year. Although the charges were unrelated to the claim, the insurer voided the policy, asserting it wouldn’t have insured the business had it known about the director’s history.

Property claim investigation

A property claim was delayed after it was revealed that one of the directors had invested in a business that later became insolvent. The director had acted as an angel investor and wasn’t involved in the day-to-day operations of the failed business. After investigation, the insurer allowed the claim to proceed, although the time spent investigating caused delays, as well as uncertainty and distress while the decision was awaited.

Our advice:

1. Ask the tough questions

Ensure you and your fellow directors are upfront and honest with each other. This may involve asking and answering uncomfortable questions. If you want a belt and braces approach, enhanced Disclosure and Barring Service checks will provide information on convictions and on Companies House you can search by director to see directorship histories.

2. Disclose early and honestly

Provide your insurer with all relevant information as soon as possible. If you think any element of your or any co-director’s financial history or past directorships could be relevant, declare it, even if you haven’t been asked the question. You should also not to be complacent at renewal, too. If anything has changed in your circumstances, you should declare it.

3. Who needs to know?

Ensure the person responsible for communicating with your insurer is fully informed of all relevant facts. If this task falls to a manager or administrator, it’s appropriate for him or her to be informed and have access to the necessary information. It’s not an excuse that this individual was not aware.

4. Revisit regularly

As an insurance provider we are in regular contact with our customers to discuss their business growth and plans, as we know that a lot can happen in an insurance period, so we make sure that insurance is adjusted along the way, not just at renewal. Make sure that material fact discussions form part of your regular communication with your insurance provider.