The coronavirus pandemic is undeniably causing tragic repercussions for businesses and individuals all over the world. With so much loss, suffering, and worry consuming us all, it's surprising that anyone is managing to continue 'business as usual' with their working agendas. While some trades are fortunately thriving under these unusual new circumstances, many others are facing the devastating challenges of closing stores, furloughing staff, cancelling events, and managing their finances in a way that will hopefully allow them to continue to operate. Perhaps, of these businesses, the most vulnerable are SMEs.
Taking that into account, many SMEs will be reviewing their outgoings to streamline their costs and conserve as much profit as possible. In difficult times like these, insurance policies can be perceived as an additional regular payment at the very top of the cull list. Have any of your SME clients approached you regarding the cancellation of their Professional Indemnity (PI) insurance cover? More importantly, have you advised them against it?
Why SMEs still need PI cover during lockdown
If your clients provide services, which are currently impossible or limited to fulfil, there can't possibly be a need for them to continue paying for their PI cover at the moment, right? Wrong! This is an all too common misconception; removing the PI cover can actually be very risky and leave your clients vulnerable to uninsured losses, which could put them into a worse position.
Unlike some forms of insurance, a PI claim can, and often does, come after the completion of a project or services provided have been completed. Although they may not currently be open for business, the cancellation of their PI policy exposes them to the genuine risk of having a claim made against them for past services delivered, with no PI cover in place to protect them.
As our Underwriting Director, John Booth, explains: "Professional Indemnity cover is written on a claims-made basis and is only valid if it is in place at the time of the notification, which can be after a project has been completed. So, if a broker's client cancels their PI cover in May 2020, and one of their clients makes a PI claim against them in June 2020 for something that went wrong with their services, even if prior to the policy cancellation in May, insurance will not be able to cover the client. Brokers must be aware of this to give the best advice to their clients."
What's the worst that can happen?
Removing PI cover could result in severe financial consequences for SMEs, particularly business and IT consultants and miscellaneous professions, to name a few.
Take an interior designer, for example – they have worked on multiple projects over the last two years, but, due to lockdown, they have had to halt all services as their work is not considered 'key' and meeting clients and/or entering their homes is no longer allowed. With business put on hold, the interior designer begins to worry about their finances, and, as a result, decides to cancel their PI insurance to reduce outgoings. Then, a claim arises for work carried out pre-lockdown, from a client who alleges that the interior designer failed to do the calculations for the spiral staircase correctly, which means that it will now have to be moved at extra cost.
Without cover, they would leave themselves without financial protection and may have to pay out any cost from claims, from their own pockets. This could be extremely damaging for an SME business, and even more so in this current climate.
If your SME clients are still unsure about the importance of having PI cover in place, you may find this article helpful to share with them.
How can TMHCC help?
Should you or your client have any concerns regarding the continuation and operation of cover through these difficult times, please contact your underwriter.
For more information about our PI policies, please click here.