How Businesses Can Avoid Having Their Theft Insurance Claims Denied
Theft poses a serious and ever-present threat to businesses of all sizes. In the UK alone, around 8% of businesses fall victim to burglary or attempted burglary each year. Tool theft, in particular, is on the rise, with claims increasing by 54% in the last two years. But while theft insurance claims are surging, successful payouts are not. And there are a number of easily avoidable reasons for this.
Why are so many theft insurance claims being rejected?
Purchasing business insurance is usually fairly straightforward. But that very simplicity can lull business owners into a false sense of security. Many don’t realise that small mistakes or overlooked details can render a policy useless when it matters most. As a result, legitimate claims are being denied, usually due to three common and preventable errors.
Underinsurance
‘The average clause’ is a commonly used stipulation within the insurance industry. Its purpose is to prevent underinsurance by laying down that any claims made of underinsured policies will be partially reduced to reflect the difference between the actual value of your goods and the value stated in the insurance policy. The average clause can even mean that insurance claims can be fully rejected if the disparity is great enough. So, it’s worth paying attention to.
The problem is that it’s easy to overlook the increased value of your property when it comes to policy renewal. It’s not uncommon for businesses to rely on rebuild values which have been index linked on their existing policy for several years. So, a refurbishment of your business, such as new flooring, which may increase the total value of your assets, can be accidentally disregarded. And in the process, this can lead to underinsurance or even the voiding of the policy so it’s important to report any changes to your insurer and make sure you’re covered.
To avoid underinsurance in the case of a rebuild, businesses should obtain a desktop rebuild costs assessment, which are generally valid for 3 years. Businesses can ensure that they are attaining an accurate level of insurance every time. This can help to reduce the potential of claim rejection greatly.
Alarm and security conditions
It’s no secret that all insurance policies have carefully worded terms and conditions. It’s also no secret that most of us just accept them without actually reading through the details. And this is problematic, because that’s where the majority of businesses will find their alarm and security conditions. These are the security measures you have to have in place in order for your insurance claims to be accepted. They may stipulate a particular type of alarm, or lighting and cameras in certain places. And if those stipulations aren’t met – if even one is missed – the insurance policy can be invalidated.
Policy exclusions
It’s not unusual for insurance policies to specifically exclude certain items or types of theft from coverage. This might mean that if a particular type of theft, such as theft by deception, is not covered by the policy, the claim may be denied. This is a common limitation in many standard business insurance policies. If you believe these exclusions could leave your business vulnerable, it’s important to discuss your concerns with your insurer and explore alternative coverage options.
It doesn’t stop with the loss of physical items
When reviewing an insurance policy, businesses often focus solely on the immediate losses from theft, such as property damage and the value of stolen goods. However, there’s another critical and often overlooked risk in business interruption. Losing physical assets is damaging, but if that loss disrupts your ability to operate, the financial impact can escalate quickly. In many cases, it’s the interruption to day-to-day operations, not the theft itself, that causes the most harm.
Imagine a retailer suffers a break-in. They not only lose their electronic devices, stock, and petty cash. They also suffer damage to property, reducing the amount of stock they can display and the customers they can serve, which will ultimately impact gross profit. If the shop typically generates £10,000 per week, with its ‘normal expenses’ being stock at 40% of sales (£10,000 – £4,000 = £6,000 gross profit) less ongoing expenses of £1,000 for rent, £3,000 for wages and £1,000 for other expenses would leave a net profit of £1,000. However, if that business was to suffer a break in, water leak, or fire event causing significant loss or damage, which results in a 50% reduction in trade (£5,000 – £2,000 (40%) = £3,000 gross profit) less ongoing expenses of £5,000 would result in a loss of £2,000.
With adequate business interruption insurance, the client would be paid £3,000 to ensure that they suffer no material losses due to the break in, or whatever the event might be. Of course, it’s inconvenient and probably distressing, but if there is no major financial impact, they can recover from the experience. Without that cover, the ongoing loss until the shop can be repaired and begin trading fully could lead to irrevocable loss, even business closure.
Business interruption insurance can seem like just another expense to account for. But when it’s needed, it can be absolutely invaluable.
How can businesses protect themselves against insurance claim rejection
Insurance claim rejections are rarely the result of insurers acting in bad faith. More often, they stem from businesses overlooking key details in their policies. The good news is that with careful planning and attention, you can significantly reduce the risk of a denied claim.
Get the details right
The first step is making sure your insurance policy accurately reflects your business’ needs. Keep your rebuild cost assessments current, and ensure all your assets – technology, tools, stock, and equipment –are correctly accounted for in your cover. Inaccurate or outdated valuations can leave you underinsured when it matters most.
Read your policy properly
Policy exclusions and specific conditions, such as requirements for security systems or alarm monitoring, can make or break a claim. Take the time to read the wording carefully. Know exactly what’s covered, what isn’t, and what obligations you must meet to maintain your coverage.
Look beyond the obvious
Theft isn’t just about stolen items. The knock-on effects, especially business interruption, can be even more damaging. If a theft stops you from trading, fulfilling orders, or serving customers, the financial losses can be significant. Make sure your policy includes business interruption cover to protect against these wider consequences.
Insurance is there to safeguard your business when the unexpected happens. But to get the protection you’re paying for, you need to do your part. This means choosing the right coverage, staying compliant with your policy’s terms, and keeping your information up to date. When that’s in place, you can trust your insurer to be there when you need them most.
Daniel Dewornu, CPI expert at i4me
