Adjustable policies

Most liability policies which we sell will be arranged on a declaration basis. This is also known as an adjustable policy.

Almost no client will be able to accurately predict their final turnover and wage roll at the beginning of their year. After all business may go up and down through no fault of the proprietors.

Insurers require your estimated financial figures to provide you with a price for your policy. It would be unreasonable for insurers to refuse cover if your turnover was not completely accurate when a claim comes in. After all you can only provide estimates at the beginning of a financial year.

For this reason, insurers will allow you to provide ‘Estimated’ figures at the beginning of the policy and then submit ‘Actual’ figures at the end of the insurance period. Insurers reserve the right to charge for any under estimation. In some cases, insurers will even agree to return a portion of the premium in the event that you have not achieved the original estimates.

There will usually be a condition within a policy which states that if your turnover increases by over 25%, or sometimes even 50%, then you need to notify insurers immediately. This means increases below this level only need to be declared at the end of the year.

Does this allow you to ‘under declare’? In short, no. The requirement is that you accurately declare your predicted turnover. However, if an insurer does not allow a return premium for overestimated financial figures (which most policies no longer provide) then you should be careful when estimating your figures. It is always better to owe money at the end of the year than be unable to claw back any over payment.

As an insurance broker, I have seen, in recent years, a tendency from insurers to waive the declaration charges or reduce these significantly if an insured agrees renewal with the existing insurer.

This can sometimes make it hard for clients to move from one insurer to another but can also work to their benefit.