In a matter of weeks, the festive season will be in full swing. This period usually comes with numerous lifestyle adjustments, including traveling, acquiring new items, and upgrading or improving homes, vehicles, and other belongings. These changes often affect the value of such items, making them more attractive targets for theft and exposes them more to risk(s). Consequently, it is essential for policyholders to understand the increased-risk clauses in their policies and ensure compliance.
Most short-term insurance contracts contain "increased risk" or "increase of risk" clauses which require the policyholder to inform the insurer of any material changes to an insured item so that the risk assessment can be updated accordingly. Significantly, the increase of risk clause ordinarily operates where the increase is permanent, although the application of a "temporary increase" cannot be totally excluded. Enhancements or upgrades to an insured item can increase its value, thereby raising the associated risk. As a result, insurance premiums may increase to reflect this heightened risk, which is reasonable given the insurer's additional exposure. Failure to notify the insurer of such changes could lead to claim rejection or even underinsurance, depending on the specific policy wording.
The following types of short-term insurance are commonly affected by increased-risk clauses:
- Motor vehicle insurance: Policyholders often add "extras" or improvements to their vehicles. These changes must be reported to the insurer.
- Building insurance: With extra funds available during the festive season, it's common for people to renovate or extend their homes, which enhances their value. Such upgrades should be communicated to the insurer.
- Fire insurance – most fire insurances usually consist of "increase of risk" clauses. Therefore, upgrades that increases the risk of fire must be communicated to the insurer. These are more pertinent in business insurance policies, particularly food outlets, and those involved in businesses that work mostly with combustible materials.
- House contents insurance: During this period, people may buy high-value items or upgrade existing ones. Significant changes to the value of household contents should be reported to the insurer, as failing to do so often leads to underinsurance disputes.
In light of the above, policyholders are encouraged to review their policies to determine if increased-risk clauses apply and ensure compliance. If unsure, they should consult their brokers or, if applicable, contact their insurers directly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
