I’ve previously posted how your legal expenses cover probably allows you to take action against anyone except your insurance company. The second in this series moves us all towards the sticky wicket of Health and Safety. This week I write about why legislation is a prerequisite to getting claims paid, why insurers don’t make it clear that this is part of the insurance contract and how it is kept a secret.

Read Insurance’s dirty little secret – Part 1

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Why do insurers do this?

They are businesses. The fewer claims they pay the more their shareholders receive. However, they also need to attract customers, and cynically hiding the worst parts of their products and service allows them to do so. They make the cover out to be wide (using terms like comprehensive or all risks) yet the exclusions seem little (fine print).

They will decline the claim of one company on the same day as they accept the proposal of another (almost) identical company. Both companies will have similar risks yet insurance companies know MDs and FDs would not buy from them if there weren’t going to get a ROI. So they “sell” the benefits and make sure they have room to wriggle in their policy documents. You might only see the detail after you have parted with your premium.

Why is it dirty?

Legislation changes all the time and it’s difficult to keep up with it. Insurers know that businesses struggle, so they provide practical help to the top tier of their clients or those that are extremely high risk. That’s because losses suffered by some businesses are huge and it’s incredibly bad PR for an insurer to decline a ‘front page’ claim.

Brokers know this too. In a world where every premium increased every year most brokers would be happy. I meet lots of business people who are unaware of important terms and conditions. When a claim is refused or reduced the broker often blames the insurer. Sometimes they charge a client more to move to a different insurance company.

How is it kept secret?

The clause that catches most people out is in nearly every policy. It doesn’t even mention Health and Safety – it’s that ambiguous. It’s not even highlighted in the ‘key facts’ documents that the FSA insist make insurance buying clearer.

I know FDs that have checked insurance for years and never understood what this clause really meant. In black and white; if you are not following every piece of legislation current today you may find that a loss that happens tomorrow is not insured. And if they do pay it you might find your premium increases without a satisfactory explanation.

Wrap up: Are you keeping up with legislation? Insurers expect you to do your bit before they do theirs. An insurance policy isn’t a guarantee. Insurers are obliged to pay out when terms and conditions of the policy (insurance contract) have been met.

See our top tips page for simple ways to help yourself today.