Why are business insurance claims rejected? Many small business owners cry foul when insurance companies deny their claims. They think these companies are being unfair to them and only want to eat up their money. While insurance companies can make mistakes sometimes and could make wrong denials, they have good reasons for most of their denial decisions.
Now, I am not ruling out the fact that insurance companies are always very reluctant to release funds. Of course, they are businesses and their primary purpose is to generate profits for their owners or shareholders. So, they usually do everything possible to avoid paying for claims. And they only pay when they have convincing proof of the claim.
As an experienced entrepreneur who has worked with many small business owners and insurance companies, I have come to realize that insurance companies are widely misunderstood. Many small business owners think they are dishonest. But in reality, most of the faults resulting in insurance claim denials lie with business owners, not the insurance companies.
If you are a small business owner, chances are that you will obtain insurance for your business sooner or later. So, it’s important you understand the commonest reasons why small business insurance claims are rejected. This will help you avoid the mistakes that lead to such claim denials. Here are the commonest reasons for denial of small business insurance claims by insurance companies.
7 Reasons Why Small Business Insurance Claims Are Rejected
1. The insurance company suspects a fraud
It is not uncommon for auto insurance owners to fake car crashes and injuries in order to pocket insurance money. Also, there have been reported cases of homeowners orchestrating burglary attacks in an attempt to game insurance companies.
However, insurance companies are getting smarter by the day, and they spend a lot of time and effort trying to verify claims. Once they suspect a fraud, your claim will be denied and investigated further. So, avoid any misrepresentation of yourself while filling out the insurance application, as this can result in the policy being declared void. Always be honest and disclose everything necessary.
2. The claim wasn’t filed on time
Most insurance companies expect claims to be files within 90 days of the event necessitating the claim, such as a hurricane that badly affected your main office and destroyed many valuables. However, some insurance companies allow for as long as 120 days and others for as short as just 30 days.
Your small business insurance claim must be filed within the period specified by your insurance company. If you file it later than that, your claim will be rejected.
3. Non- or late processing of the claim by the insurance company
Sometimes an insurance company can misplace or delay the processing of your claim. If such a misplaced claim doesn’t get into the company’s system before the deadline, it will be rejected. And even though this fault is from the company’s end, they usually don’t pay whenever this happens.
4. Lack of specificity of claim
According to experts, one of the best ways to reduce claim denials is to be highly specific when presenting your claim. A claim that doesn’t state clearly why you should receive any insurance money will be rejected.
5. Omission of important details
If you leave out certain important information out of your claim, it will come back to haunt you in the form of a denial. An insurance company will almost always notice any omission and count on it as enough reason to deny your claim. So, always ensure that you leave out no vital piece of information such as relevant dates.
6. Receipt of claim by wrong insurance company
Insurance companies often delegate the management of some of their plans or some aspects within their plans to other companies. When they do this, they usually inform policy owners. If you fail to bear this in mind and send your claim to another company instead of the one managing claims like yours, you will have it rejected.
7. Coverage limits reached or exceeded
Insurance companies don’t provide unlimited coverage. If the amount of damage claimed exceeds your policy limits on your declarations page, your claim might be denied, since the insurance company will not pay the excess.
While there are many other reasons small business insurance claims can be rejected, only the commonest ones have been discussed here. It is very important that small business owners read and understand the terms and conditions of insurance companies they are buying policies from. This will help them understand the insurance company better and avoid any form of misunderstanding that can arise regarding claims.