Increase in Risk – Notification Clause

Purpose

Premium calculation is based on the risk disclosed at application. Where the policyholder changes use, operations or protective measures during the policy period such that the probability or severity of loss materially increases, the insured risk shifts away from the original calculation. The clause obliges the policyholder to notify such an increase in risk without delay, so the insurer can decide whether to continue the contract on amended terms, terminate it, or decline continued cover.

Effect and limits

If notification is not given, the insurer may, depending on the jurisdiction, rescind, terminate, or be released from liability for the period after the increase in risk; whether the increase in risk caused the loss is usually decisive. Not every change triggers the duty – only a material, lasting increase relating to the risk factors asked about at application; temporary or minor changes remain outside its scope.

Negotiation and practice

Underwriters often define specific, reportable events in the policy wording (change of use, cessation of operations, structural works) to avoid disputes over classification. Policyholders are well advised to routinely check operational changes against the statements made in the proposal and to notify proactively even where materiality is uncertain in the individual case.

Jurisdictional comparison

Under Swiss law, a material increase in risk means the insurer is no longer bound by the contract for the subsequent period (Art. 28 VVG). Germany distinguishes in Section 23 VVG between an increase in risk brought about by the policyholder, one recognised later, and one occurring independently of the policyholder’s will, each with its own notification deadline. Austria regulates increase in risk in Sections 23-30 VersVG with a comparable differentiation but its own deadlines and rescission requirements.