The Insurance Problem with Working from Home

Working from home? Running a small business from your spare room? Then you'll need to read this – and you'll need to speak to your insurance company.

Are you (still) working from home? Chances are you are – and if you are, you probably will be for a while still. In April 2021, a full year into South Africa's national lockdown, a PwC survey found that just over 33% of South African workers said that their ideal future work environment would be a mix of face-to-face and remote working, with more than a quarter (27%) saying they'd like a permanent #WFH setup.

If you're running a business (whether it's a side hustle or a full-time, full-on SME) from home, you might not have a choice. As thousands of small-business owners have found, one of the easiest ways to cut your running costs is to run your office from your lounge, or your factory from your garage.

If you've made that move, transforming your home into a place where you live and work, you'll need to tell your insurer. Here's why...

Mr D's insurance claim

Before facemasks and elbow bumps were a thing, there was a South African hobbyist and small-business owner named... let's call him Mr D. In 2018, a fire broke out in the outbuilding (his hobby shed, basically) on his property.

It was hard to tell how the fire started. Mr D assumed that it was caused by his camera battery or electric drill (both of which were charging) catching alight. Either way, his shed was a pile of smouldering rubble, and he wanted his insurance to pay for the damage.

The insurer rejected Mr D's claim, pointing to paragraph 4.3 of his policy, which specifically excluded 'loss or damage of any insured property related to your profession, business or farming operations'. 'If [the property is] used for business or commercial purposes,' the policy stated, '[the insurer] must be advised immediately in order for the correct cover to be arranged.'

Turns out Mr D hadn't told his insurance company that he was using his shed to build light remote aircrafts – both as a hobby and (here's the tricky part) as a business.

Mr D took his case to the Ombudsman for Short-term Insurance (OSTI).

The blurred line between work and home

'The insurer submitted that Mr D's policy was a homeowner's policy and had not been taken out for any commercial or business purpose,' the OSTI's case file records. 'The building was insured as a private dwelling and not for any commercial/business use. The insurer submitted that the policy excluded cover if a loss occurred as a result of the building being used for business purposes.'

Mr D's side of the story was that the computers and drone he used for his work were undamaged and were definitely not what had caused the fire. 'Mr D submitted that the insurer's rejection of the claim on the basis that the fire occurred as a result of business activities was unfounded and unsupported by any evidence,' the OSTI reported.

The insurer then said that if Mr D had told them that he would be using the building for business purposes, they would have arranged a commercial/business policy for him after sending a specialist to do a risk assessment. He hadn't. They didn't. End of story.

Except it wasn't the end of the story. The OSTI ruled that 'the insurer had not provided any evidence to prove that the alleged change in use of the property to business use was material to the loss', and therefore recommended that the insurance company settle the claim in full.

The insurance company accepted the OSTI ruling (as they pretty much always do), and they settled Mr D's claim.

Know your insurance risk

Mr D's story ended happily for him, but what about you? If something dreadful were to happen in your newly established home office, would your insurance company cover the damage caused to your home by something that happened in the office? You may have blurred the lines between your work life and your home life, but as far as your insurer is concerned, they're still completely separate worlds.

Your insurer isn't looking for creative ways to deny your claims. Not at all! All they ask is for you to keep them updated on changes that will materially affect the cover they're providing you with. That's not unreasonable, is it?

If you have changed your home/work situation, it's time you updated your insurance. Use our online tool to compare home insurance quotes, and to make sure you're still getting the best deal for your needs.

This article is for informational purposes only and should not be construed as financial, legal or medical advice.