A quote is not a guess at what your business is worth insuring for. It is a price built from what you tell the insurer, checked against what you should have told them, and set against the wording you are being asked to accept once the policy is bound. Getting the right cover at the right price starts with understanding that exchange before it happens.

The three questions behind every quote

Behind the figure a broker quotes sit three separate questions, and each has its own way of going wrong. What do you know about your business that the insurer needs to know, and who inside the business counts as knowing it? What figure have you put on what you stand to lose, and does that figure still hold? And what have you actually agreed to, in the words printed on the schedule? This guide takes each of the three in turn.

• Disclosure: what the duty of fair presentation under the Insurance Act 2015 requires, who in the business is treated as knowing what, and what counts as a reasonable search before the proposal form is signed.
• Sums insured: how the average clause reduces a payout once the insured figure falls short of the true value at risk, and how that figure is set correctly before renewal.
• The wording itself: the difference between a warranty, a condition precedent and an exclusion, and the specific questions worth putting to a broker before the policy is bound.

Why these three, and why now

Each of these failures shows up at claim stage, which is what makes them expensive. An underinsured stock loss, a professional indemnity notification made too late, an employer with no liability cover in place: none of these become visible until something goes wrong, by which point the premium has already been paid and the shortfall belongs to the policyholder. Reading how an underwriter actually prices a risk and what each cover is built to respond to makes the disclosure and the wording easier to take seriously at renewal. The case of the builder who had no employers' liability cover in place is a plain illustration of what happens when the gap between assumed cover and actual cover is never checked.

Before an underwriter will quote a commercial policy, the law asks something specific of the business seeking cover: disclose every circumstance a prudent underwriter would want to know before deciding whether to take the risk on, and on what terms. That obligation is the duty of fair presentation, set out in section 3 of the Insurance Act 2015 (s.3), and it applies to every commercial policy placed in the UK market. It is a different duty from the one a consumer owes when insuring a car or a home for personal use. Consumer policies sit under the Consumer Insurance (Disclosure and Representations) Act 2012, which asks only that the policyholder takes reasonable care not to misrepresent the risk when answering the insurer's questions. A business does not get that lighter standard. It has to disclose material circumstances proactively, whether the insurer asked about them or not.

What counts as a material circumstance

A circumstance is material if it would influence a prudent underwriter's judgement on whether to accept the risk and on what terms, including price. That covers the obvious things: past claims, previous convictions relevant to the trade, other insurers' refusals to renew. It also covers things that feel routine to the business but are not routine to an underwriter, such as a change of premises, a new subcontracting arrangement, or work carried out abroad. The test is what the underwriter would want to know.

Who the duty falls on

The duty is not satisfied by the person who fills in the proposal form knowing everything they personally know. Section 3 requires disclosure of what the business knows or ought to know after a reasonable search, and that knowledge is drawn from anyone who is part of the business's senior management or who is responsible for arranging its insurance, including brokers acting on its behalf. A fact known to a site manager or a finance director does not stop being the business's knowledge because the person who signed the form had not been told it.

What a reasonable search covers

A reasonable search means checking the records a business of that size and type would ordinarily hold, incident logs, correspondence with previous insurers, board minutes, and asking the people inside the business who would know. It is a different exercise from ticking boxes on a proposal form, because the form only asks what the insurer thought to ask, while the duty asks the business to volunteer what it knows regardless of the questions put to it. A broker involved in placing the risk is expected to make reasonable enquiries too, and their knowledge counts as the business's knowledge for this purpose.

Getting it wrong

The Insurance Act 2015 sets out proportionate remedies for a breach, and the remedy depends on what the insurer would have done had it known the true position. Where the breach is deliberate or reckless, the insurer can avoid the policy and keep the premium. Where it is merely careless, the remedy depends on what the underwriter would have done with full disclosure: it might have charged a higher premium, applied different terms, or declined the risk altogether, and the claim is settled accordingly. That distinction, between what the underwriter would have done and what actually happened, is usually where a dispute over non-disclosure is fought.

Terms like material circumstance, senior management and reasonable search carry precise meanings under the Act, and the glossary sets those out alongside the other terms a policy schedule uses. How this disclosure feeds into the price an underwriter actually quotes is covered in how an underwriter quotes a business insurance policy. A broker registered with BIBA can talk through what a reasonable search should look like for a particular trade, and the guides index sets out the other decisions that sit alongside disclosure when a quote is being built.

The sum insured is the figure on the policy schedule that sets the most a property insurer will pay for the buildings, stock or contents you have declared. It looks like a number you might trim to keep the premium down, but most commercial property and business interruption policies carry a condition known as average, and getting that figure wrong changes what the insurer pays even on a loss that sits well inside it.

How the average clause works

Where a policy is subject to average, a claim is settled in the same proportion that the sum insured bears to the true value of what was insured at the time of the loss. The insurer is not asking whether the loss itself was accurately estimated. It is asking whether the business was carrying the full risk on the sum insured or only part of it, and paying accordingly.

Say a shop insures its stock for £50,000, but the stock actually held on the day of a fire was worth £100,000. A fire destroys £20,000 of that stock. Applying average, the insurer pays in the same proportion as the sum insured to the true value:

• £50,000 sum insured ÷ £100,000 true value = 50%
• £20,000 loss × 50% = £10,000 paid

The remaining £10,000 is not an excess and it is not a dispute over the loss adjuster's figures. It is the shortfall built in the day the sum insured was set too low, and it applies whether the loss is total or, as here, partial.

Why the figure has to be reinstatement value

The sum insured needs to reflect reinstatement value: what it would cost to rebuild the property or replace the stock and contents new, at current prices. Businesses drift into underinsurance quietly, because rebuilding costs rise, stock holdings grow with the trade, and a renovation or an extension gets used without the sum insured being told about it.

Setting the figure before renewal

A sum insured worth relying on is checked. Before renewal, it is worth confirming:

• The buildings figure reflects current rebuilding cost, including demolition and debris removal.
• Stock is valued at its peak level during the year.
• The business interruption sum insured covers the full indemnity period the policy allows.
• VAT and professional fees for rebuilding are included where the policy requires it
• The figure has been uplifted since the last renewal.

None of this is a matter of judgement once the facts are gathered: a professional valuation, a stocktake at the right time of year and an honest look at rebuilding costs will settle the number. The judgement is in remembering to do it before the schedule is signed.

The term average and related definitions are set out in the glossary. For how the sum insured feeds into the premium an underwriter calculates, see how an underwriter quotes a business insurance policy. To work through the arithmetic on a scenario of your own, the interactive tools page includes a calculator for exactly this, though any tool of this kind can only work with the figures it is given and should be checked against your own schedule.

The quote is only half the transaction. The other half is the document you receive after you have paid, which sets out exactly what the insurer has agreed to pay for and, more importantly, the things you have to do to keep that agreement standing. Reading the schedule and wording before you pay is the only point at which you can still change something.

Warranties: promises that end cover if broken

A warranty in a business policy is not a general reassurance. It is a specific promise, written into the schedule or wording, that a stated fact is true or that a stated thing will be done, and breaching it can end the insurer's liability from the moment of breach, regardless of whether the breach had anything to do with the loss that followed. A warranty that an alarm will be set whenever the premises are unoccupied is a common example. If the alarm was not set on the night of a burglary, the insurer can rely on the warranty even if a working alarm would have made no difference to what a determined burglar did.

Before signing, find every warranty in the wording and check it against how the business actually operates. A warranty about a manned premises, a sprinkler system, or a named security measure needs to match reality at renewal as much as at inception.

Conditions precedent: the small print that decides whether a claim is even considered

A condition precedent to liability is a requirement that must be satisfied before the insurer's obligation to pay arises at all. Notification within a set number of days is the one that catches out most policyholders, because a genuine, valid claim can still be refused if it was reported late and notification was made a condition precedent. The distinction between the two is legal, not linguistic, so it is worth checking the wording rather than assuming a heading tells you which is which.

• Find the notification clause and note the time limit and what triggers it.
• Check whether the clause is labelled or otherwise structured as a condition precedent.
• Ask who in the business is responsible for spotting a notifiable event and reporting it.

Exclusions: what is being left out, and why

Every wording lists things it does not cover, and the ones worth reading closely are the ones that sit closest to the business's actual risk. A shop with a basement stockroom should read the escape of water and flood exclusions with the basement in mind; a professional practice should read the exclusions in a professional indemnity wording against the specific services it actually provides. An exclusion that looks standard on the page can remove the exact loss a business is most likely to suffer.

Questions to put to a broker before signing

• Which clauses in this wording are warranties, and which are conditions precedent?
• What is the notification time limit, and does it start from the event or from when it becomes known?
• Which exclusions apply most directly to how this business actually operates?
• Has anything changed since the last renewal that needs to be disclosed under the duty of fair presentation?
• Is the sum insured based on current reinstatement or replacement cost, or an older figure carried forward?

None of this replaces reading the wording itself. A broker can explain a clause, but the business is the one that has to comply with it, and it is worth checking any broker you deal with against the FCA register or finding one through BIBA's find-a-broker service, both of which exist to confirm who is authorised to arrange cover on your behalf.