Why honesty is the best policy in business insurance

In the UK, the total value of reported fraud was £2.3 billion in 2023, according to a FraudTrack report. And with almost half of fraud suspected to go under the radar, who knows just how much people are getting away with? 

But if you’re thinking of lying to your insurance broker or insurer, think again. Not only is it illegal, but it’s really not worth the risk of getting prison time. Who would run your business if you were put behind bars? 

That’s why honesty is the best policy. Excuse the pun, but in this case, it’s pretty relevant.  

Find out why in this guide.

Why do people lie about their business insurance policy? 

Whether it's a few pounds or a few thousand pounds, some people will lie to their business insurance provider to save money. And if it isn’t for some kind of financial gain, it could be a way of getting an application accepted that was previously denied. 

Sometimes, people try to get more compensation when making a claim, so they lie about the damages. 

Imagine you run a small takeaway business and you have an accidental fire you could claim on your business insurance policy. As part of this, you would need to indicate what needs replacing, and you might lie or exaggerate to take advantage of the claim and get new equipment. 

What types of things do people lie about on business insurance policies?

When supplying information to an insurer, some business owners might give false or inaccurate information to insurers to purposely deceive them. Here are some examples: 

Revenue and sales figures 

Giving false revenue and sale figures to lower premiums is a way to deceive your insurer. Business owners who lower certain figures to give the impression they are smaller or less profitable in the hope it’ll lower their annual costs shouldn’t be doing so. 

Business activities 

Those who lie about the nature of their business — whether it’s not disclosing a car delivery service or lying about the number of employees they have, giving false information is a misrepresentation. 

Property details 

If you purposely give inaccurate details about your business premises, this could cause problems with your insurer. You may be aware your property is prone to flooding but decide not to disclose this to your insurer, which could cause issues down the line.

Or, you may have an unserviced boiler and lie to your insurance provider. An unchecked boiler causes more risk than one that’s been serviced. 

Claims history 

Not being honest about previous claims is a big no when it comes to business insurance. If you’ve been with a previous business insurance provider and made a claim against any of your policies — or you’ve had a claim made against you — this can affect the policies you are offered, premiums and excess amounts.  

Imagine you run a local cafe and one of your customers gets food poisoning from some undercooked sausages you serve them. The customer is elderly and vulnerable, and the family decide to claim because of her prolonged illness. Your public liability insurance makes a payout to the customer on your behalf. Not disclosing this to your new insurer in the hope of securing a cheaper deal is dishonest and could mean your policy won’t cover you in the event of any further claims. It could also cause your policy to be voided when the insurer finds out. Not to mention, you could potentially have to disclose this forever.

Number of employees 

Generally, the larger the business, the higher your insurance premium (the amount you pay for your business insurance). So if you purposely tell an insurer you have 10 employees instead of 20 to try and get a better deal —you’re deceiving your insurer. 

It’s not worth trying to save a few pounds, you could end up getting your insurance terminated, and any future quotes could be refused.

Coverage needs

Some businesses need certain cover because of their nature. If you own a takeaway that delivers, you’ll need business car insurance, but if you own a beauty salon, then you won’t. 

But if you were to lie about the cover you need, you could end up underinsured. So if something were to happen, such as a claim for spilling hot food down a customer, your claim might be rejected. This is because your insurer may find out you don’t have the right policies in place or need more adequate cover. 

Change in circumstances 

If you move premises, add a new product to your range, or employ a few more people — you must tell your broker. Changes to your business can affect the validity of your business insurance package. The last thing you want as a business owner is for your insurance claims to be rejected because you forgot to tell your insurer about the changes within your business. Make sure to always let them know if circumstances change, or you could end up paying out of your own pocket. 

Is lying to your insurer fraud?

Not all lies to insurance providers are intentional attempts at fraud — mistakes sometimes happen. That’s why it’s vital to check over your insurance policies, read the small print and make sure your application is correct and to the best of your knowledge.  

But, there are business owners out there who will purposely lie to try or go to great lengths to get a payout from their insurer — this is fraud. There are two main types of insurance fraud: 

• Soft fraud  - This type of fraud is more common. This is when a business owner exaggerates a legitimate claim or lies about information when applying for insurance to get a cheaper deal. This is a criminal offence and is considered a crime of opportunity.  
• Hard Fraud - This is when a business owner harms their property for their own financial gain. For example, a business owner sets fire to their own cafe because they want to refurbish it with the latest equipment and can’t afford to do so. This is hard fraud and a criminal offence that could end in prison time. 

Why is honesty the best policy when it comes to business insurance?

Honesty really is the best policy. Little white lies just aren’t worth it, you could end up in prison and lose your business.  

Being truthful not only means you’ll be properly covered, but you’ll also have peace of mind that if you do run into trouble — your insurer should pay out and it won’t be left down to you.  

If you need some more convincing, here are some other reasons why being transparent is the best way to go about things. 

Ensures accurate cover  

Arguably the most important, you’ll want your business to be fully insured, not underinsured. Being honest about business practices, operations, employees, and your premise by answering everything truthfully is so important. From the type of doors you have to any appliances you have installed yourself. 

Running a small business is hard enough, at least you’ll be able to sleep at night knowing your back is covered. 

Builds trust and credibility  

If you regularly inform your business of any changes, then you’re actively building trust and credibility with your insurer as your partner. As business owners know, relationships are key in business, so building trust with your insurer means they’ll be proactive when helping you sort a claim or amending your policy. 

It’ll also help if you decide to switch insurers, as you won’t have any wrongdoings against you and shouldn’t face too many issues with getting your package sorted. 

Avoid legal consequences 

Lying to your insurer is fraud. And no matter how severe the lie, you could face legal action. This could result in your insurer taking you to court and you paying out, getting your insurance void or facing prison time! Big lie or small, it’s not worth the risk personally or the impact it could have on your small business. 

Easy claims process 

If you’ve been truthful from the start and you need to make a claim on your business insurance or someone makes a claim against you, then it should be a relatively straightforward process. Sometimes claims need a bit of time for investigation, but if you know you’ve been honest, your insurer shouldn’t uncover anything unforeseen that could hurt your claim. 

Are there any penalties for dishonesty in insurance?

Yes, you could end up in court. And because insurance fraud can vary greatly, so can prison sentencing. For lying, you might get some community service, but according to The Fraud Act 2006, you could get up to 10 years in prison if the fraud was carried out as part of a larger criminal conspiracy. This could be disastrous for you and your business and leave you with a criminal record. If you stay honest, you’ll stay out of prison! 

What should you do if you’ve discovered an error in an insurance application? 

Everyone makes mistakes from time to time, but incorrect details on your insurance application could cause you a headache. If you find this is the case, you should contact your broker straight away to iron out any mistakes. The last thing you want is to be accused of lying to purposely deceive them. In most cases, your insurer will want to help put it right. 

Can insurance providers cancel a policy if they find discrepancies in information?  

Yes, if your insurer finds incorrect or inconsistent information, they are within their right to:  

• Cancel or completely void your business insurance policies 
• Not issue you a refund 
• Refuse to reinsure you 

Need support? Get your business insured with Bionic  

Whether you need some support with finding the right insurance package for your business or just some general advice, at Bionic we can support you. We work with a panel of trusted providers and the latest tech to find business insurance packages for UK businesses. 

And if you're unsure of anything when arranging your cover, a member of our insurance team will be on hand to help you out.

We also can sort out your business broadband, phone and VoIP services as well as run a business energy comparison and get you a new deal. 

Looking for more to read on insurance?  Head over to our Business Insurance guides page from topics on whistleblowing to choosing the right insurance package for your business.