KNOWLEDGABLE PERSON

Knowledgeable Person Requirement – Who Must Report Claims

In plain language: A "knowledgeable person" in the insurance terms means any individual in a company who understands insurance or risks and is responsible for reporting a claim when it arises.

Technical definition: In the insurance industry, a "knowledgeable person" refers to someone within the policyholder's operations who possesses an understanding of the insurance process, the claims reporting process, and can identify potentials risks. Their involvement is primarily seen in the policy conditions, especially in policies related to Errors and Omissions (E&O). In addition, the person is responsible for reporting claims or circumstances that might give rise to claims as soon as they become aware of them.

Let's imagine that your business had a fire, and you forgot to notify your insurance agency immediately. As a result, there might be consequences due to late reporting. That's where the requirement of a knowledgeable person enters – they ensure that claims are reported on time.

TL;DR

The knowledgeable person requirement is a policy condition that entails a person within the policyholder organization to report claims timely.

It’s important in day-to-day agency work to avoid late claim reporting and potential claim denial.

A common misunderstanding is that any individual can report a claim. The "knowledgeable person" term often refers to designated people in a leadership or risk management role.

A best practice for agencies is to clearly define who counts as a knowledgeable person with the policyholder at the inception of the policy and annotate it.

What Is 'Knowledgeable Person' in Insurance?

In insurance, the term 'knowledgeable person' refers to someone who possesses general knowledge about insurance coverage, claims process, and risk factors associated with the business operations. They are often the ones who provide the first notice of claim to the insurer.

The requirement is commonly found in Insurance policies' conditions, particularly in professional, directors, and officers, and umbrella liability policies.

The inclusion of this term necessitates a deeper understanding of policy conditions and the claims reporting process, which can significantly inform decision-making while mitigating risks. Therefore, agencies should be aware of the critical thinking required to determine who in the organization should be designated as a 'knowledgeable person'.

The designation often varies depending on the nature and size of the business. In smaller businesses, it may be the owner or operator, while in larger entities, it can be someone in the leadership or risk management team.

Key Related Terms to Know

First notice of claim – The initial report of an insurance claim to the insurer.

Claims reporting provisions – The policy terms specifying how and when claims should be reported to the insurer.

Late reporting – Delay in submitting the first notice of claim to the insurer.

Errors & Omissions (E&O) insurance – A type of liability insurance that protects businesses and professionals if they're held responsible for a service provided, or for failure to provide a service, that did not give the expected or promised results.

Claims-made basis – A treatment of liability insurance in which a claim needs to be made during the policy period.

Common Questions About 'Knowledgeable Person'

When should the knowledgeable person report claims?

Claims should ideally be reported as soon as possible after a loss occurs. This immediate reporting allows the insurer to respond quickly and determine the next steps in the claims process.

What are the consequences of late claims reporting?

Late reporting can have significant consequences on a policyholder's insurance coverage. In some instances, a policy might contain "reporting" conditions that could lead to a forfeit of coverage if not met. This stress the importance of the 'knowledgeable person' in an organization.

Who is typically considered a 'knowledgeable person' in smaller companies?

In smaller organizations, a 'knowledgeable person' could be the owner or a senior worker who is familiar with the operations, risks, and insurance coverage.

What cognitive skills and knowledge base should this person have?

The 'knowledgeable person' should possess strong cognitive skills, including analysis and judgement, to promptly recognize potential claim scenarios. They should also have a broad knowledge base about insurance coverage, potential risks, and the claims reporting process.

Knowledgeable Person vs. Claims contact person

The core difference lies in the knowledge and responsibilities attributed to each role:

Comparison Area	Knowledgeable Person	Claims contact person
Primary use case	Identifying and reporting claims or potential claims	Receiving claim reports and communicating with the insurer
Responsibility type	Broad, encompasses knowledge of insurance and risks	Can be narrower, mainly focused on communication with the insurer
Typical exclusions	None specified, although their roles must be clearly defined at policy inception	Might not be involved in identifying potential claims and risks
Who is most affected by errors	Policyholder might face a coverage issue if claims are not reported promptly	Delays in communication can affect the claims resolution process
Common mistakes	Misunderstanding their role in the claims process	Not forwarding claim information to the insurer in a timely manner

Real Claim Examples Involving 'Knowledgeable Person'

Scenario 1: A retail business experienced a burglary, causing significant loss. The business owner, who was considered the 'knowledgeable person', reported the incident to the insurer 30 days later, violating their policy's reporting provision.

The insurer denied the claim due to late reporting, which could have been avoided had the owner reported the loss immediately upon discovery.

Scenario 2: In a nutritional supplement company, an executive was the designated 'knowledgeable person'. He discovered minor errors in their product labeling that they feared might lead to a lawsuit but chose to wait and see. When a customer filed a legal action for misleading labels, the late reporting led to claim denial.

Scenario 3: A manufacturing firm identified certain defects in its products that could potentially harm customers. The assigned 'knowledgeable person', the risk manager, immediately notified the insurer about the potential claim. The prompt action allowed the insurer to provide guidance on mitigating risks and prepared for potential claims.

Limitations and Common Mistakes

The 'knowledgeable person' requirement does not apply if the policy does not include it.

Mistaking any employee as a 'knowledgeable person' can delay claims reporting.

Failing to notify potential claims promptly can lead to claim denials.

Failing to annotate the 'knowledgeable person' at policy inception can lead to disputes at the time of claim.

How to Explain 'Knowledgeable Person' to Clients

Small Business owner: "Think of a knowledgeable person as your main point person on insurance matters in case of claims or incidents. It's someone in our team who knows how to respond, what information to provide, and when and how to notify your insurance company."

Risk Manager: "A 'knowledgeable person' in terms of insurance is the individual authorized to declare a claim to the insurer. Their duty is to communicate any identified risks or potential claims to the insurer promptly to avoid any complications or rejections in the future."