Whilst there are exceptions, insurance policies normally run for a period of one year and are renewable every 12 months however most insurers will offer a discount if the client signs a Long Term Undertaking.
By signing a Long Term Undertaking (LTU) or Long Term Agreement (LTA), a village hall agrees to renew its policy for the 3 or 5 year period with the insurer offering the undertaking in exchange for a policy or section discount. The hall is then bound by the undertaking provided the insurer does not alter the rates or amend the terms applying to the policy.
Typically a premium discount of 5% is allowed for a 3 year agreement and 10% for a 5 year agreement.
Theoretically, this will keep the premium at the same level for the agreed period, notwithstanding changes to the policy such as increases to the sums insured or the purchase of additional sections of cover.
A valid undertaking means the hall is effectively tied in and cannot easily move to a different insurer who may be offering more favourable terms until the undertaking expires. This applies even if you are unhappy with the service you are receiving.
However, if your insurer increases their rates or amends their terms for any reason, including claims experience or just a strategic rating review, the undertaking is deemed to be broken and you become free to place your business with another insurer at renewal.
It is also important to remember that the undertaking is actually between the village hall and the insurer and not the broker or intermediary, so, if you are using the services of an insurance broker and they change the insurer providing your cover then the original LTU becomes null and void.
If the hall elects to break the undertaking by changing insurer mid-way through the 3 or 5 year period, it could be liable to repay the discount received over the previous years that the undertaking was in force. The insurance industry standard is to honour LTU’s where they legitimately exist.
Points to remember:
- They are valid for 3 or 5 year terms
- The discounts that apply are usually 5% or 10%
- They can sometimes apply to sections of the policy rather than the policy as a whole i.e. one agreement applies to the material damage section and another to the liability section.
- If the insurer breaks the undertaking by increasing their rates and/or terms you can freely move your business to another insurer
- An increase in premium solely due to changes in sums insured or index linking does not constitute a break in the undertaking
- Insurers will not normally quote against a risk where a valid LTU is in place
- If you choose to break an undertaking you may be liable to repay the discount you have received