.svg)
Statement of Fact vs. Proposal Form: Your Duty of Fair Presentation
%20.webp){kind=icon}
- A Statement of Fact may feel easier than a proposal form, but it does not remove the buyer’s duty to verify the facts.
- Take your broker's advice and let them decide which option is the most suitable to meet your needs.
The Legal Background - Duty of Fair Presentation
For UK commercial insurance, the Insurance Act 2015 created a statutory duty of fair presentation. This means a business must disclose every material circumstance it knows or ought to know, or provide enough information to put a prudent insurer on notice that it needs to ask further questions.
A material circumstance is something that would influence the judgement of a prudent insurer when deciding whether to insure the risk, what premium to charge, what limit to offer, what excess to apply, or what exclusions and conditions to impose.
This duty applies before entering into the policy, renewing it, or making certain variations.
Why does Statement of Facts (SoF) exist?
The use of a statement of fact streamlines the insurance application process, making it easier for policyholders to provide a fair presentation of the risk without the need for extensive proposal forms.
It ensures that both the insurer and the insured have a clear understanding of the factual basis on which the insurance contract is formed. This clarity is crucial for avoiding disputes over coverage, especially in the event of a claim.
In case of a dispute regarding the disclosure of information or the terms of coverage, the statement of fact serves as a key piece of evidence. It shows what information was disclosed to the insurer at the time of policy inception.
Applicant Responsibilities and Considerations
It is the responsibility of the applicant to ensure that all the information provided in the statement of fact is accurate and complete. Any intentional or unintentional omission or misrepresentation of material facts can lead to issues with claims, including the possibility of a claim being denied or the policy being voided.
Upon receiving the statement of fact, policyholders should review all the details thoroughly before agreeing to proceed with the cover. Any inaccuracies should be corrected immediately to ensure the insurance coverage accurately reflects the risk.
When should we complete a Proposal Form?
It depends on a number of factors. Firstly, is the route to market available given the product and business attributes? If your business can fit within the scope of the predetermined thresholds and answers the questions favorably, the SoF route can be a cost-effective means to secure standardised cover.
However, the proposal form route can be less restrictive in terms of the declarations you will need to make about processes and controls. Secondly, the coverage offered on a SoF basis will typically contain a higher number of restrictions and exclusions.
Your insurance broker can provide guidance on whether this route to market is available for the specific products and whether it would be appropriate given your risk profile. For broader cover, typically a proposal form will be required, but this can mean a higher premium because your submission will need to be manually underwritten.
Statement of Fact & Proposal From Legal Basis
The proposal form and/or SoF is a legal document that becomes part of the insurance contract. It serves as evidence of the information disclosed by the insured at the time of application. It is the responsibility of the applicant to ensure that all information provided in the proposal form is accurate and complete. Failure to disclose material facts or providing false information could result in the insurer denying claims under the policy.
Combined Proposal Form and SoF Approach
More and more insurers are seeking to apply SoF declarations, even where a proposal form has been completed. If there is conflicting information within the SoF, this should be highlighted prior to binding the policy. The onus is still on the applicant to read any SoF provided with a quotation to ensure the business can comply. If not, these should be highlighted and discussed with your insurance broker.
Why use Indemnity for your enquiry?
At Indemnity, we help clients navigate the disclosure process with careful consideration. Whether the insurer requires a proposal form, a Statement of Fact, or a renewal declaration, we can provide our opinion on your best approach.
Many clients prefer to keep the information provided to a minimum because they are concerned it will mean higher premiums. In fact, the opposite is true. Insurers will apply more punitive rates if there is a lack of information and comfort about what they are insuring.
A good insurance broker can pose additional questions to present your business in the best possible light. Providing additional comfort to insurers that your business has an awareness of the risks it faces, and seeks to mitigate them wherever possible.
People Also Ask
Do I need to sign a Statement of Fact to make it legally binding?
.svg)
No, a physical or digital signature is not required for a Statement of Fact. Unlike a traditional Proposal Form, which will almost always feature a mandatory signature block, a Statement of Fact is usually bound without. When your broker sends you the document and you give the instruction to go ahead and bind the cover, your email or verbal confirmation serves as your legal declaration that every fact listed in that document is accurate.
What is considered "Material Information" when checking these documents?
A material circumstance is anything that would influence an underwriter's judgment in deciding whether to accept a risk, and what terms, and premium to charge. If you are unsure, provide the details to your insurance broker for review.
Is passionate about leveraging his knowledge and experience of professional risks to the benefit of his clients. With over 2 years experience, he possesses a keen analytical mind and a strong dedication to client service, and data management. Currently studying to become a Chartered Insurance Broker, his ability to understand complex risk scenarios and provide strategic solutions makes him a valuable asset to any team.
A respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director. previously held senior positions at Willis, QBE and Chubb said: “Customer preferences are driving change and insurance brokers have a significant part to play in delivering effective solutions."
