- SME Insurance
The Knowledge
,
2nd January 2024Professional Indemnity Combined cover helps firms navigate the risks of providing advice
The management consulting profession is currently in a state of flux – and it’s generating uncertainty for both consultants and the businesses that need their expertise. Rising interest rates, ongoing geopolitical volatility, stagnant activity in mergers and acquisitions, and the evolution of AI are making many businesses think twice before paying to hire outside professional advice.
At the same time, many small- to medium-size enterprises (SMEs) in the consulting profession who are successfully attracting new business must satisfy even higher client expectations than they did before. This sets them up to face greater potential repercussions when things go wrong.
Consider these scenarios: A firm could overlook an omission in a contract, thereby generating unforeseen expenses for their client’s business. Or perhaps they deliver strategic advice that is free of errors, yet it still results in unexpected lost business or other negative consequences for their client.
If these events triggered legal action, many small- to medium-size firms would struggle to weather the resulting financial damage. Even smaller risks to their day-to-day operations could lead to costly consequences for these firms – or, at best, create troubling distractions from running the business.
SMEs may feel the pain of these problems even more acutely at a time when they may be struggling to collect payments from their clients. Recent research found that in the past year, 38% of small consultancies experienced payments that were more than three months late. For 62% of small- and medium-size firms, delayed payments had a detrimental effect on cash flow.[1] If these firms are managing extra pressures from clients and other unexpected losses beyond their control in addition to cash flow problems, they may well be pushed to their breaking point.
High stakes call for a strong safety net
Fortunately, these firms do have options to help safeguard their business in such situations – and gain a little breathing room. Professional indemnity insurance (PII) provides valuable protection for management consultants exposed to these risks – particularly for smaller enterprises that lack the resources of global consulting firms.
However, many of these firms overlook the importance of this insurance – or have determined that they can’t fit it into their budget amid rising expenses. Recent research from GlobalData found that PII penetration is falling among smaller SMEs in sectors where PII is not compulsory. This is largely due to the cost pressures these firms have been experiencing since the COVID-19 pandemic, as well as increases in insurance premium rates. The proportion of firms surveyed who cancelled their PII policy due to the pandemic was higher for small- and medium-size firms (8% and 9%, respectively) than it was for micro enterprises (6%) and sole traders (2%). Two-thirds of SMEs that cancelled their PII due to COVID-19 either needed to cut costs or were unhappy with their expected level of cover.[2]
Of course, having no cover exposes SMEs to much more risk in a challenging business environment – and also highlights an education gap for insurers and brokers to fill with regard to how PII can support and protect consulting firms.
“There’s a big opportunity in the market for brokers to help their SME management consultant clients make the connection between available professional indemnity covers and their ability to tolerate the risks of providing advice to businesses,” said Jonathan Forster, SME Distribution Director at Travelers Europe. “Not all covers are the same. Some build in additional protections that can help consultants manage the stresses of the profession more easily – and even keep them in business altogether.”
A collection of protections against the risks consultants face
Travelers built its PI Combined cover around the evolving risks that professional service businesses have to navigate – and the combination of protections it includes can offer management consultants some vital peace of mind. The cover is designed to support SMEs in non-regulated and tech professions who want to protect their people, business and property from a range of risks and liabilities. In addition to the PI cover, it brings together employers’ and public liability, property covers, plus optional cyber and legal expenses cover – all in a single policy. PI Combined is available through eTrade or via the company’s dedicated SME New Business Team.
“When management consultants aren’t distracted by the potential for costly lawsuits or other fallout from problems with clients, they have the freedom to focus on delivering their best work,” Forster said. “The range of protections available in PI Combined can make that possible for them.”
To find out more about Travelers PI Combined cover, UK brokers can visit here; Irish brokers can visit here.
Travelers does not warrant that the information in this article constitutes a complete and finite list of each and every item or procedure related to the topics or issues referenced herein. The information provided in this article is intended for use as a guideline and is not intended as, nor does it constitute, legal or professional advice.
[1] https://www.consultancy.uk/news/35413/small-consultancies-struggle-to-hire-as-late-payments-bite
[2] https://www.globaldata.com/store/report/uk-professional-indemnity-insurance-market-analysis/
