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Business Description: Why You Need To Get It Right On Your Insurance Policy

28th February 2023

When you get a quote for an insurance policy to protect your company, you’ll need to provide details of who you are and what you do. We come across business descriptions of all shapes and sizes, including the weird and wonderful. And the more accurate, the better.

In this blog, we’ll unpack why it’s important to make sure your business description is correct, up to date, and matches your activities on your insurance policy.

 

What is a business description?

When applying for insurance, you’ll need to provide a business description, among other details. This is an explanation of what your business does, including the products or services you offer and how you operate.

Why do insurance companies need this information? They’ll use your business descriptions to understand the specific risks you face in your sector. This informs the level of coverage and the policy cost.

 

What should a business description include?

You might find it difficult to write an appropriate business description when you deliver multiple services. However, it’s especially important that you explain your business activities accurately and comprehensively. Aim for a broad but precise description that covers all activities, products, and services.

For example, at RiskBox we have several clients who class themselves as a digital agency. They may deal with a diverse range of services, including strategy, graphic design, digital marketing, web design and development, and more. Their business descriptions must cover all these activities so that the insurer is fully aware of what they do.

 

What happens if you get the business description wrong?

If you don’t provide an accurate business description to the insurance provider, you run several risks, such as:

  1. Inadequate coverage: If your description doesn’t accurately reflect the nature of the business and the risks you face, the policy may not provide sufficient coverage. This could incur significant financial losses that aren’t covered by the policy
  2. Higher premiums: If your description doesn’t accurately reflect the risks you face, the insurance company may charge a higher premium to compensate for the perceived increased risk.
  3. Voiding the policy: If the insurance company finds that your description is materially inaccurate, they may void the policy. This means it would no longer cover your business in the event of a loss.
  4. Legal consequences: Inaccurate or misleading information provided to an insurance company may be considered fraudulent, and could result in legal action.

Therefore, it’s important to provide a thorough and accurate business description when applying for a commercial insurance policy.

Example: an insufficient business description

Let’s say a digital agency specialises in creating websites for small businesses. Their services include everything from graphic design to web development. But when they provide their business description to the insurance company, they only list their logo and business card design services.

Down the line, a client hires the agency to design a new website. But the website isn’t functional, and the client incurs significant financial losses as a result. They sue the agency for compensation, and the agency’s professional indemnity insurance policy is called upon to cover the legal costs and any settlement or judgement amounts.

Yet, because the business description initially provided didn’t accurately reflect the full scope of the agency’s website design services, the insurers would reject their claim. As a result, the agency must pay for the legal costs and any settlement or judgement amounts out of pocket, which could be financially devastating.

 

So, what’s the best way to prevent problems?

Whether you’re taking out a new insurance policy or updating your coverage, you must make sure you’re clear and accurate about what you actually do.

The best approach is to break down every area of work in your business – no matter how big or small – and calculate the percentage of turnover generated in each. Then, your broker or insurer can help make sure the description is sufficient to cover your business activities and services.

 

I’m concerned my business description is incorrect, what can I do?

If you think your business description may be inaccurate, contact a broker or insurer right away. They can update the description and issue you the revised documentation to give you peace of mind – and, importantly, protect your business.

 

For a specialist’s opinion, or to have someone double-check your business description, get in touch with our friendly team. You can reach us on 0161 533 0411, at [email protected], or by filling in our online contact form.

 

Photo by Christopher Gower on Unsplash

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About RiskBox Ltd

RiskBox are a specialist commercial insurance broker focused on the creative industries, from agencies to tech, media to entertainment. We are truly independent, without any ownership or investment from insurers, therefore our advice is impartial.

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