The importance of keeping your insurer informed where the risk profile changes

Insurance policies often contain a particular clause stating that any change in circumstances must be notified to the insurer – frequently known as an “Alteration in Risk” clause. This places an overarching duty on a policyholder to notify its insurers if there is any alteration in risk, or a change in facts which would materially affect the risk of injury, loss, damage or liability which would fall within a policy.

If insurers are not notified, the policy may be void and any claims presented under the policy may not be met. The obligation is ongoing and can occur at any time during the policy period, whether at the outset of the policy, at renewal or when seeking to vary or extend cover.

Whether there is a material alteration in risk is fact-dependant. There is very little case law on material alteration. In Ansari v New India Assurance Limited [2009] EWCA Civ 93, the Court of Appeal held that, in relation to the specific insurance contract in question, “material” had to be understood as referring to alterations or changes in facts of a kind that took the risk outside that which was in the reasonable contemplation of the parties at the time the policy was issued. The case also identified several important factors that should be borne in mind when considering whether there had been a “material alteration in risk”. These are:

• The change or alteration must be more than temporary
• The change or alteration must effectively change or alter the risk, such that it is a new one
• The policyholder must have been aware of the alteration in risk such that they were able to notify insurers

A policyholder should therefore think carefully about notifying its insurers where there are any changes to the risk profile as presented to insurers at the last renewal. If changes have occurred, you would be well advised to notify so as to avoid giving insurers the opportunity to avoid the policy, particularly in the event of a large claim.

If the insurer considers that the nature of the risk has changed, it may either charge an additional premium to reflect the change in the risk profile or decline cover, in which event the risk will need to be placed elsewhere.

It will be a matter for negotiation as to whether the facts presented alters the risk in any material way.