Insurance renewal basics: considerations and opportunity

Most organisations, depending on the nature of their business, will have a suite of insurance policies which they might have placed for the first time long ago and then renewed each year on similar terms. Meanwhile, their risks may have changed for a variety of reasons and insurance needs will follow. 

Therefore when doing you annual insurance renewal it is a good opportunity to review your risks and ensure your cover is appropriate.

When will renewal occur?

Insurance renewals will usually occur on the anniversary date that an insurance policy was procured. That date may be any date of the year and in most cases renewal will occur annually. Although annual insurance renewal is the more common, some policy periods can be a period of months or even years.

Considerations: disclosure and notification to the insurer

Section 21 of the Insurance Contracts Act 1984 (Cth) prescribes that an insured has a duty to disclose to the insurer matters that would be relevant to the insurer's decision to accept the risk and, if so, on what terms (that is, the insurer's decision to issue the insurance policy to the insured on particular terms).

The duty of disclosure arises before an insurance contract is entered into, as well as upon each and every renewal. If an insured does not comply with the duty of disclosure, the insurer may reduce its liability to pay the claim (potentially to nil) and, in the case of fraudulent breach of the duty of disclosure, may refuse to pay a claim and avoid the contract.

The lead-up to an insurance renewal is an opportune time to consider the organisation's risk profile and it is essential to consider any matters that ought to be disclosed to the insurer.

With this in mind, it is a worthwhile exercise for the insurance and risk personnel of organisations to send an email to all employees asking if there are any circumstances, facts, issues or concerns regarding:

• the organisation;
• its business;
• its employees; or
• its directors and officers;

of which the insurer needs to be aware, and which warrant disclosure in accordance with the insured's duty.

If there are matters that ought be notified to the insurer, the company should consider carefully the nature and extent of the notification to make to its insurer. Notification to the insurer should include all circumstances that an insured organisation is aware might result in a claim against it.

However, the notification cannot be too broad or vague such that the insurer cannot understand the nature of the potential claims that might be brought against the insured. When advising clients in connection with when to notify, our suggested approach is to notify early and notify often.

Opportunity: review

The renewal process is a good opportunity to review the cover, terms and conditions of your suite of policies. Organisations must understand all of the issues surrounding their insurance policies and their renewals, and most will work with an insurance broker and sometimes an insurance lawyer to do so.

For some policyholders, there may be room to negotiate policy wording upon terms more favourable to insureds. At the very least, they must conduct a risk analysis of their business, decide what risks they wish to manage by way of insurance (including the level of that cover) and assess whether their insurance operates in a manner that is intended and provides the range of cover desired for those insurable risks. Some points to review and check before each renewal are:

Who is actually covered by the insurance policy?

How is the insured organisation described? Consider whether the description is still current and also whether there are any related entities or subsidiaries that should be specifically named. Are there any individual persons who ought to be named as Insureds on particular policies?

Remember, there is a difference between a "joint insured", "named insured", "third party beneficiary" or having your interests "noted". There are important legal differences between the party contracting with the insurer and persons who are not a contracting insured. Non-contracting insureds are common in major project policies. For example, there may be numerous contractors and sub-contractors all working on the same project at different times. None of the individual contractors are referred to by name, rather by description, for example, "contractor". Parties who have the benefit of cover extended to them as beneficiaries can enforce the policy directly against the insurer, by virtue of section 48 of the Insurance Contracts Act.

What is your business?

Is the description of the business still relevant? Consider whether the types of activities listed in the policy schedule are an accurate description of the business activities undertaken. Are there aspects of the business that have expanded and should be reflected in the description of the business?

Do you have the correct limits?

Consider whether the limits of liability and any applicable sub-limits remain appropriate. The limit of liability is the maximum liability that insurer/s will have under an insurance policy. Sub-limits are the limits upon coverage for a particular type of loss. Sub-limits generally do, however, form part of and are not in addition to the limit of liability under the policy.

Carrying over changed wording

Ensure that any previously negotiated changes to policy wording have been carried over into the policy wording for the new policy year. Often insureds may go to a considerable amount of trouble and cost to negotiate wording with an insurer only to have it removed from cover in the following policy year (and such changes in cover may not necessarily be reflected in the premium).

Endorsements

Endorsements to insurance policies are commonly found either directly following the policy schedule or at the back of the policy after the main wordings. Endorsements may vary the terms of the policy by deleting some clauses, adding new clauses, or varying the wording of clauses. Checking to ensure the endorsements are appropriately drafted and correspond correctly to the relevant policy/ices is essential.

A review of the policies before renewal is best done in consultation with the organisation's insurance brokers and solicitors. If possible, it is worth reviewing the policies at the earliest opportunity to allow plenty of time to get all aspects of the policies in order and negotiate any terms.