When it comes to making an insurance claim, there are a variety of reasons why it might not be paid out in full, or at all. To help avoid any surprises, we've compiled a list of the top 10 reasons claims may be reduced or rejected.

1. Underinsurance

One of the most common issues is underinsurance. It's vital to have accurate, up-to-date valuations for your buildings and machinery. Our experience shows that around 81% of buildings are underinsured. 

2. Inexperienced or indecisive loss adjuster

Having an experienced loss adjuster who works solely in your best interest is crucial when dealing with significant losses.

3. Inadequate Business Interruption (BI) cover

While 36 months might seem excessive, it often provides the necessary time to restore your business to its pre-loss trading levels. Depending on your specific situation, 24 months may suffice, but 12 months is usually inadequate.

4. Non-disclosure

It’s essential to disclose all relevant information that could influence an underwriter's decision to provide cover. This includes previous County Court Judgements (CCJs), adverse directorships, criminal records, and any past insolvencies. Failing to disclose these can result in a claim being denied.

5. Lack of insurable interest

To make a valid claim, you must have a financial interest in the property you’re insuring. Without this, your claim could be rejected.

6. Misrepresentation of risk

Even minor misrepresentations can lead to claim denial under the Insurance Act. For instance, if your manufacturing process involves heat, and this isn't typical for your industry, it must be disclosed to your insurer. Anything that could increase the likelihood of a loss should be made clear.

7. Lack of supporting documentation

Claims can be denied if you don’t have the necessary documentation to back them up. This could include lacking an electrical safety certificate or failing to keep receipts for cash sales. Ensure you comply with all regulations and keep proper records.

8. Misunderstanding percentage uplift/declared value basis of cover

Insurance policies often include both a "declared value" and a "sum insured" for buildings. The declared value should accurately reflect the building’s value on the first day of the insurance period. The sum insured typically includes an allowance for inflation throughout the year (usually 15-25%). However, the sum insured will only protect you adequately if the declared value is correct.

9. Breaches of security warranties

Security warranties are specific conditions in your policy that must be adhered to. For example, your alarm system must meet the required standards. Make sure you understand your obligations under these warranties.

10. Exclusions for fires caused by cannabis farms

This is becoming an increasingly significant issue for landlords. Many policies now exclude cover for fires caused by cannabis farms, so it’s crucial to ensure your policy covers this risk. If you’re unsure, consult your insurance advisor.

By understanding these common pitfalls, you can take steps to ensure your insurance cover is robust, reducing the likelihood of issues when it comes to making a claim.