Insolvency and Insurance: What Your Business Needs to Know
Insolvency.
It’s a topic many would rather avoid – but with one in every 191 UK companies becoming insolvent in 2024, it’s something more and more businesses are facing.
It’s not just the businesses that feel the impact. Suppliers, customers and partners can all be affected when the insolvency of a business happens.
The impact on the directors of insolvent businesses is significant too, and often has long-term implications; one example is disclosure when it comes to accessing insurance for a new enterprise.
Support from Prosura
At Prosura, we believe in making insurance clear and straightforward.
That means helping you understand what your policy includes, what you need to tell your insurer and where you stand if your financial position changes.
What is Insolvency?
According to GOV.UK, insolvency happens when a company can’t pay its debts on time or when its liabilities exceed its assets.
In some cases, this may lead to formal steps like administration, liquidation or entering a Company Voluntary Agreement (CVA). While these terms might sound technical, the steps aren’t taken lightly – with suppliers left unpaid, customers’ orders cancelled, and reputations put at risk.
How Does Insolvency Affect Business Insurance?
Put simply, insurers need to know the full picture before offering cover – and that includes your financial position.
If an insurer isn’t made aware of past or current financial issues – including insolvency – it can affect your ability to make a successful claim. In some cases, policies may even be voided.
Therefore, transparency is key. If you’re unsure whether a change in circumstance is relevant, it’s always worth checking with your broker.
What Do You Need to Disclose?
When it comes to insurance, honesty isn’t just the best policy – it’s a legal requirement.
Under the Consumer Insurance (Disclosure and Representations) Act 2012, insurers expect you to take reasonable care not to make a misrepresentation when providing information. This includes being honest about financial concerns or risks of insolvency, past or present.
The Challenge
Whilst it is a legal requirement to disclose insolvency, insurers operate differently. Some ask for disclosure linked to the last five years, others seven years, some as long as 20 years but in most instances, many insurers don’t have a timeframe at all!
This is a huge challenge and can create a great deal of confusion. Perhaps you’ve renewed your policy without addressing the small print, assuming nothing has changed. But if your insurer has different terms linked to a disclosure period, you could be leaving yourself open to unpaid claims.
Prosura’s Approach
We work hard to find the right cover, this includes supporting those that have experienced insolvency.
Change is on the horizon
The industry recognises that there are challenges linked to disclosure and are waking up to the fact that the rules have been unclear for too long.
Ahead of its recent annual conference, the British Insurance Brokers’ Association (BIBA) indicated a shift was happening when it unveiled guiding principles.
Alongside the Insurance Brokers Standards Committee (IBSC), BIBA is calling for greater clarity when it comes to insolvency disclosure, and we fully support it.
Backed by Prosura CEO, Jon Newall, the new guidance calls for a clearer, fairer and more practical approach to insolvency disclosure.
This includes:
- Asking concise and relevant questions
- Proposing that insolvencies older than five years don’t need to be disclosed.
- Helping company directors, who have previously been penalised, to move forward.
As Jon explains:
“Clarity and guidance make it easy to inform and educate; it removes misunderstanding and minimises instances of desperation that can lead some to sweep the facts and responsibilities under the carpet and risk non-disclosure.
“It’s about realigning the industry’s moral compass – creating a more functional and fair landscape for those who’ve faced challenges but are building again.”
If you’re ever unsure about what you should be telling your insurer, it’s always best to check with your broker.
What Should Business Owners Know?
In short, insolvency doesn’t just affect your insolvent business – it affects your insurance applications linked to new endeavours.
Being open and honest about financial challenges, no matter how uncomfortable is key to protecting your business.
In addition, if a supplier or client is showing signs of trouble, speak to your broker. There may be steps you can take, such as credit insurance or contract reviews, to reduce your risk exposure.
How Prosura Can Help
We are here to support you, whether you’re a Prosura client or not. If you’ve got any questions about disclosure, cover or your options in uncertain times, we’re happy to help.
We’re not just about policies – we’re about people and making sure businesses like yours have the confidence and clarity to move forward, no matter the risks.
Let’s Talk
Find out more about our extensive range of products here and speak to the team for support with all of your insurance needs, we protect your most valuable assets.
About Prosura
Prosura is a business and lifestyle insurance broker that simplifies the complexities of insurance.
Prosura is more than just an insurance broker. Firstly, they are an experienced team. Secondly, they combine the highest levels of customer service and advice with finding the right, cost effective policy. Ultimately, they protect your most valuable assets.
Operating locally and throughout the UK, Prosura supports businesses of all sizes and sectors including manufacturing, distribution, property, and leisure and hospitality.
Most importantly Prosura tailors its offering to meet both business and personal needs. In addition, to provide further value for its customers, Prosura also includes its free ‘lawyer in a box’, a digital legal service for customers.
The Prosura team is based in Wakefield.
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