DRN-6151397

The complaint Mr Z has complained about the amount Accelerant Insurance Europe SA/NV UK Branch has offered to settle a claim he made on his commercial buildings insurance policy. Reference to Mr Z or Accelerant includes respective agents and representatives. What happened The circumstances of this complaint aren’t in dispute, so I’ll summarise the main points: • Mr Z took out a commercial buildings insurance policy through an independent intermediary in 2021. It was underwritten by Accelerant. • Following a fire in April 2022, Mr Z got in touch with Accelerant to make a claim for damage and loss of rent. Accelerant accepted the claim. However, it said Mr Z was underinsured in relation to the building and therefore the damage claim settlement would be reduced. I understand the loss of rent claim was settled without reduction and doesn’t form part of this complaint. • Mr Z had said the rebuild cost of the property was just over £2,100,000 when he took out the policy. Accelerant said the cost was nearly £2,800,000, so Mr Z had underinsured the property. After further discussion, Accelerant settled the claim as if Mr Z were 91.6% insured and made the corresponding payment to him. • Mr Z complained about the claim settlement and the way the claim had been handled, but Accelerant maintained its position. • Our investigator thought Accelerant had acted unfairly. She said it should pay an additional sum to settle the claim without a deduction for underinsurance, plus interest, and £350 compensation for the inconvenience caused to Mr Z. • Mr Z agreed with our investigator’s suggestion. Accelerant said it thought our investigator’s suggestion meant it would have to pay around £70,000 more for the claim settlement, and nearly £10,000 in interest, and this was a large amount. Our investigator explained why the interest she’d suggested was in line with our usual approach. Accelerant didn’t respond further. • As an agreement wasn’t reached, the complaint has been passed to me. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. • When considering what’s fair and reasonable in the circumstances I’ve taken into account relevant law and regulations, regulators’ rules, guidance and standards, codes of practice and, where appropriate, what I consider to have been good industry

-- 1 of 5 --

practice at the time. Whilst I’ve read and taken into account everything said by both parties, I’ll only comment on the points I think are relevant when reaching a fair outcome to this dispute. That’s a reflection of the informal nature of this Service. • The main point of this complaint is Accelerant’s decision to proportionately settle the buildings claim. So that’s what I’ll focus on. I’ll then move on to the secondary complaint point, which is about claim handling. Proportionate settlement • Accelerant reduced the claim settlement by relying on a policy term. Both parties are aware of the full wording of it, so I see no need to quote it all here. In summary, it’s an average clause, which has the following impact: if Accelerant considers the buildings weren’t sufficiently insured, it will settle the claim proportionately, in line with the proportion of the sum insured to the actual rebuild cost. • I recognise that policy term is in the policy wording, so ordinarily Accelerant would be entitled to rely on it. However, my role is to consider not just a single policy term in isolation, but also, amongst other things, the wider policy terms and any relevant law. • In essence, Accelerant has relied on the average clause because it doesn’t think the rebuild cost Mr Z provided initially was sufficient. There are laws about the information policyholders should provide when taking out or renewing insurance policies, and the options an insurer can take in response. Because Mr Z is a commercial customer, the law is the Insurance Act 2015 (“the Act”). • The Act says, in summary, that Mr Z was responsible for making a ‘fair presentation’ of the risk. If Mr Z fulfilled that duty, Accelerant has no remedy – which means it can’t proportionately settle the claim. If Accelerant can show he didn’t fulfil that duty, and Accelerant can show that it would have acted differently if he had fulfilled that duty, the Act sets out the remedies available to Accelerant. The remedies can include settling the claim proportionately. Though it’s important to note the method for calculating the proportion differs from that in the average clause. • The Act is clear that any term which is disadvantageous in comparison to the position set out in the Act is of no effect unless certain ‘transparency requirements’ are met. Accelerant hasn’t sought to argue that it met the transparency requirements. And I’ve seen no evidence to suggest it took the relevant steps to do so. • Accelerant seems to be aware of the Act and its impact, because it has included another term in the policy which sets out Mr Z’s duty to make a fair presentation in accordance with the Act. This includes an explanation that Accelerant may be entitled to proportionately settle the claim – in line with the method set out in the Act. • That means Accelerant has two different policy terms which set out two different methods for calculating a proportionate settlement for underinsurance. One is explicitly in line with the relevant law, whilst the other isn’t – and, in certain situations, may disadvantage Mr Z in comparison to the relevant law. • Accelerant has insisted it’s entitled to rely on the average clause within the policy wording, as this makes up the contract of insurance. But I don’t think it would be reasonable – or fulfilling my role – to disregard the relevant law. And even if I were to disregard the relevant law, I would still have to consider the other policy term, and that mirrors the relevant law.

-- 2 of 5 --

• In summary, Accelerant can rely on the average clause – unless it would put Mr Z in a position which is disadvantageous in comparison to the position set out in the Act and the other policy term. So, I’ll begin by considering the position if I were to follow the Act, compare it with the position if I were to follow the average clause, and reach a conclusion about what a fair settlement would be. • To setup the policy in 2021, Accelerant wanted Mr Z to estimate the rebuild cost. And for that to be set as the buildings sum insured. So the question is whether the estimate he gave – just over £2,100,000 – amounted to a fair presentation. In other words, was it a reasonable estimate of the rebuild cost, based on what Mr Z knew, or ought reasonably have known, when he took out the policy in 2021? • I think it’s important to keep in mind that the rebuild cost is an estimate and not a matter of fact. So there isn’t a single ‘correct’ answer that Mr Z ought reasonably have given. He isn’t required to give the exact same estimate Accelerant would have done or the ‘most accurate’ estimate possible. There are a range of reasonable estimates and Mr Z will have made a fair presentation if his estimate was within it. • Accelerant took advice from a surveyor, M, who estimated the rebuild cost at just £2,800,000 in March 2023. And Mr Z took advice from a surveyor, B, who estimated the rebuild cost at just under £1,900,000 in May 2023. • I understand M and B are both members of the Chartered Institute of Surveyors. They both inspected the property and put together detailed reports to explain their respective estimates. In my view, this means both of the estimates are credible and reliable professional valuations. • Accelerant took the average of the two valuations and based the proportionate settlement calculation on that figure. I can see how the average of two professional valuations might be seen as the most accurate estimate available. But that isn’t the test set out by the Act. Mr Z wasn’t required to provide the most accurate estimate available or predict what the average of two future professional valuations might be. For the reasons given above, he was required to give a fair presentation, and that means providing an estimate within the reasonable range. • I note both estimates were based on costs around eighteen months after the relevant date, so both will include a degree of building cost inflation that should be removed. Nonetheless, the estimate Mr Z gave was greater than B’s and lower than M’s. So his estimate was between two professional valuations, despite the inclusion of building cost inflation, and I consider that means his estimate was in the reasonable range. • In these circumstances, I’m satisfied Mr Z therefore made a fair presentation – and, under the Act, Accelerant has no remedy and can’t proportionately settle the claim. • I’ve thought about the impact if I didn’t see things that way and instead found a fair presentation would have been the average of the two estimates – around £2,400,000. In that case, Mr Z wouldn’t have made a fair presentation. Then, in line with the Act, Accelerant would have a remedy if it could show it would have acted differently if a fair presentation had been made. • For example, if Accelerant would have charged a premium 10% greater with a higher sum insured, it may be entitled to reduce the claim settlement by a similar amount. However, despite our investigator asking about this, Accelerant hasn’t engaged with

-- 3 of 5 --

this point – and hasn’t provided any premium information. So Accelerant hasn’t shown what difference, if any, a higher sum insured would have had. • So, even if I thought Mr Z didn’t make a fair presentation, Accelerant has no remedy under the Act – and can’t proportionately settle the claim. • Because Accelerant did proportionately settle the claim, the action it’s taken by relying on the average clause is disadvantageous to Mr Z compared with the position set out in the Act. For the reasons given above, that means the average clause is of no effect under the Act in this case – and the clause can’t be relied upon. • The arguments I’ve made above are in line with those made by our investigator. Whilst Accelerant didn’t agree with her suggested outcome, it didn’t make any counter arguments or challenge any specific argument she made. • Taking all of this together, it’s clear Accelerant hasn’t acted in line with the relevant law – and that’s disadvantaged Mr Z. As a result, I’m not satisfied Accelerant has acted fairly and reasonably. • To put things right, Accelerant should act in line with the relevant law. That means making a further payment to Mr Z, to settle the claim without a reduction for underinsurance. As he’s been without this payment unfairly for a period of time, in line with our usual approach, interest should be added to this payment. It should be calculated from the date the main claim settlement payment was made until the date Accelerant makes the additional payment. • It was reasonable for Accelerant to consider and explore the possibility of underinsurance. I don’t think any of the inconvenience that caused Mr Z was avoidable or unreasonable – it was simply a matter of investigating the claim. However, Accelerant didn’t take into account the relevant law or the other policy term, and that did cause avoidable inconvenience to Mr Z – it’s meant much more administration than would otherwise have been the case. So I agree with our investigator that Accelerant should pay compensation to reflect the avoidable inconvenience, and £350 is a fair and reasonable amount in the circumstances. Claim handling • Part of Mr Z’s complaint was originally about the way the claim had been handled. • Our investigator explained why she thought the claim had broadly been handled fairly, aside from the underinsurance point above. She noted the relatively complex issues involved in the claim and the high value both meant it was reasonable for the claim to take longer than might otherwise be expected. As a result, she didn’t ask Accelerant to pay compensation for the claim handling. • I agree with these points. And neither party has challenged them. So I don’t think it’s necessary for me to go into them in more detail. My final decision I uphold this complaint. I require Accelerant Insurance Europe SA/NV UK Branch to:

-- 4 of 5 --

• Make an additional payment to settle the claim without a reduction for underinsurance. • To this payment, add interest at 8% simple per annum, from the date the main claim settlement payment was made to the date the additional payment is made*. • Pay £350 compensation. *If Accelerant considers that it’s required by HM Revenue & Customs to deduct income tax from that interest, it should tell Mr Z how much it’s taken off. It should also give Mr Z a tax deduction certificate if he asks for one, so he can reclaim the tax from HM Revenue & Customs if appropriate. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr Z to accept or reject my decision before 26 May 2026. James Neville Ombudsman

-- 5 of 5 --