Common mistakes when making a business insurance claim

To help you minimise losses, we identify mistakes often made before and during the claims process.  

Typical mistakes before a business insurance claim is made 

Often, the insurance you’ve set up isn’t suitable in the first place. That could be for many reasons, for example, if you renew your policy without reviewing it or haven’t told your insurer about a change of business activities.  

The most common mistakes we see in business insurance include: 

Underinsurance 

This is one of the biggest mistakes business owners make. It happens when your policy doesn’t cover the actual cost of the items you’ve insured.  

Underinsurance doesn’t just mean you’ll get slightly less of a payout. It means what you get will be reduced to match the amount you’re underinsured by. This is called the average clause (or rule of average). 

For example: 

• The sum insured on your commercial property is £250,000. 

• You claim for £100,000 after a fire damages the building. 

• When your claim is assessed, you find out the building’s value is actually £500,000. This means you’re underinsured by 50%. 

• Your insurer applies the average clause, so the amount you receive will be reduced by 50% (to match the amount you’re underinsured by).  

• As your claim is £100,000, a 50% reduction means you only get £50,000.  

If the differences are relatively small and your business can absorb the cost, underinsurance might only be an expensive inconvenience. But if you’re significantly underinsured, the impact could be financially devastating.  

Arranging a professional valuation can minimise the risk of being underinsured, particularly where expertise is needed. 

For other items, such as office contents, machinery, or stock, be sure to review your sums insured before you renew. You should also consider seasonal fluctuations, for example, if you carry more stock around Christmas.  

Poor record keeping 

It’s easy to get distracted with the day-to-day tasks of running a business, but poorly organised paperwork can delay your claim. 

Keep receipts, invoices, estimations or any other important documents up to date and safe. If documents are stored electronically, check they’re backed up separately.  

If you don’t already have a business continuity plan, it could be something to consider. Knowing who you need to contact and what you need to do can save you time and help you focus on what needs to be done.  

Poor risk assessment and lack of prevention

Businesses can’t avoid all risks. However, a risk assessment can help you mitigate the impact when something goes wrong or reduce the chances of it happening.  

Health and safety isn’t just for high-risk industries like manufacturing and construction; it’s something all business owners must consider. At the simplest level, it can include keeping fire exits clear and having electrical items tested regularly.  

Business insurance policies expect you to meet certain legally required standards, such as, ensuring engineering inspections of machinery. Not meeting those conditions could mean your claim is rejected.  

Insurers can also reject claims if they determine you’ve failed to minimise or prevent further damage after the initial incident. For example, if a window was smashed, it’s safe to assume you should board it up to prevent more damage. 

Overlooked or misinterpreted terms and conditions

The ‘small print’ is there for a reason and sets out the terms and conditions you’re expected to meet. This could include meeting certain security standards including a working CCTV or intruder alarm system.  

As with health and safety precautions, there may also be minimum standards that relate to waste disposal or storage of hazardous materials.    

Failing to meet specific policy conditions, can mean your claim is rejected.  

If you’ve leased out a commercial building, ensure tenants are aware of any conditions they need to meet.  

Like-for-like or market value only

You’ll often be given the choice of replacing items like-for-like or at market value. 

Policies that provide like-for-like replacements will aim to replace damaged or stolen items with brand-new ones. If a like-for-like cannot be found, you’ll be compensated with an equivalent item or the money to buy one.  

Market value policies take into account wear and tear. It means any compensation you get will be based on the value of that item now, not when it was new.  

For example, if you suffered a small fire damaging your IT equipment, a like-for-like policy would give you the money to buy new replacements. A market value policy would only pay out the current value, which may be considerably less than the prices you paid originally. 

Because market value policies limit the compensation you get, premiums can be cheaper. This might feel like a good idea in the short-term, but it could lead to insufficient payouts that leave you covering the cost from your own pocket. It’s also important to ensure that the sum insured is based on the type of cover you have selected (like-for-like or market value only).  

Consider business interruption insurance

If something unexpected happens and your business is forced to close, business interruption insurance can help cover your lost income.  

When you arrange your policy, be aware of your insurer’s definition of gross profit (which may include wages). This helps ensure you have enough cover for all your regular business expenses.  

Another area to consider is the length of the indemnity period (the amount of time the policy pays out for). A longer indemnity period is usually recommended as this helps ensure you don’t get caught short if it takes longer than anticipated to get your business back up and running.  

Mistakes made during the claims process

If you need to make a claim, here are some common mistakes to avoid during the claims process: 

Ignoring deadlines

Check whether there’s a timeframe for making claims. If your insurers ask you to submit documentation, it’s also important to stick to any deadlines they’ve given for submission.  

Insurers will normally implement a time frame if your claim is related to a protocol that only allows them a certain amount of time to investigate; for example, insurers have 21 days to acknowledge and three months to investigate a personal injury claim. A time frame for claim notification ensures they have the most amount of time possible to investigate. There may also be a timeframe to notify insurers so they can take action quickly to minimise further loss.  

Being prepared upfront (and keeping paperwork current and at hand) can help you meet tight deadlines.  

Inadequate or incorrect documentation

When you make a claim, you’ll be asked for details about what’s happened and to provide evidence. Questions should be answered as fully as possible to avoid delays.  

Providing time-stamped photos can help give your insurer a clearer idea of what’s happened, especially if you’ve had to do emergency repair work (don’t forget to keep receipts).  

If a crime has been committed, remember to get a crime reference number and the names of witnesses. Injuries should also be documented in a copy of a medical report.  

Trying to do it all yourself

Business insurance claims can be complex, involving numerous people, including your broker, loss adjusters, specialist engineers, and the insurer.  

Seeking professional help can make all the difference, not just in terms of navigating the claims process, but also in terms of advice. An insurance broker can support you through the claims process, ensuring you get the best possible outcome.