Although the UK economy has slowly picked itself back up again, many companies are still feeling the pinch and are therefore looking at ways to help reduce their costs. One of the key areas that they look to do this is on their insurance premiums. Unfortunately, when it comes to your insurance policy – you really do get what you pay for.
We have come across a number of insurance policies over the years that are just not worth the paper they’re written on. Granted the policies are cheap, but the cover provided by them is practically non-existent. When we review these policies and place them on the correct basis this inevitably increases the cost, which some customers are just not willing to pay.
We’ve therefore decided to note the main sections within an insurance policy that we feel should be brought to your attention. In our experience, these are the areas where the corners are cut and it is only after a claim has arisen that the policyholder realises they could be in trouble, by which time it’s too late.
Here are some key things to look out for:
• Are the sums insured accurate? This is, for obvious reasons, an extremely important area of cover. In regards to asset cover, the sums insured need to be more than just the sale value of the property but must be adequate not only to rebuild the property but also sufficient to pay for site clearance, architects and surveyors fees and compliance with any additional building regulations. If it transpires that the sums insured do not cover the full rebuild value, then any future claim payment will be reduced proportionately to the amount that they are underinsured by – more information can be found on the Financial Ombudsman website.
• How are defence costs treated in the policy? This is in respect of policies where you may be expected to defend your claim in court, for example after a motor accident or under your Directors and Officers Liability Insurance. A costs inclusive limit of indemnity will include defence costs within the limit, thereby reducing the actual amount left to pay a claim. A disputed claim in court can soon accumulate huge costs which can leave you with very little when a final figure is eventually reached. A costs exclusive limit of indemnity will provide cover for the costs of defending a claim in addition to the limit of indemnity, thus providing far superior cover.
• ‘Any one claim’ or in the aggregate? The limit of indemnity is the maximum amount that insurers are willing to pay; however, this limit can be treated in two ways. The most common that you will find is that the limit of indemnity will apply to ‘any one claim’. This means that if you were to suffer multiple (unrelated) claims in the same insurance period, you would have the full limit of indemnity available for each claim. However, it is also possible that you have an aggregate limit of indemnity for the insurance policy period. This, in effect, caps the insurer’s total expenditure for that insurance policy period, regardless of how many claims are made which could leave you up a creek without any cover.
• Costs inclusive or exclusive of the excess? A costs exclusive excess means that an excess is only to be paid by the insured in the event of a settled claim. They would not be liable to pay anything if an insurer successfully defended a claim. However, a costs inclusive excess does apply to any defence costs incurred. For example, if the excess in the policy stated “£2,000 costs inclusive” then the insured would have to pay the first £2,000 of any defence costs, regardless if it was subsequently defended.
So there you have it. As you can see, a policy with costs exclusive of the excess, an aggregate limit of indemnity and with defence costs included within the limit of indemnity would be providing dramatically less cover than its better-equipped counterpart and if you bought your policy direct from insurers, you probably didn’t even realise the differences.
We would always recommend using a broker for your insurance requirements as they know exactly what to look for and can ensure that you get the best cover available at the most competitive price. However, if you do decide to go direct to insurers, please be aware of what cover is actually being provided under the policy and on what terms, rather than just looking at the premium.
If you have any queries regarding your current insurance arrangements, please do not hesitate to contact us –