So you think you are a Management Consultant?

If you are a Management Consultant then you are a member of what is one of the fastest growing professions. But what is a Management Consultant exactly? There are many people who use this catch all term to describe the work that they do when buying Professional Indemnity Insurance (PII) however it is important to understand that just because you describe yourself as a management consultant that doesn't mean that you will automatically qualify for cover under a Management Consultants Professional Indemnity policy. And if Insurers don't agree that you are working as a Management Consultants then you may find that your Professional Indemnity Insurance policy won't cover you in the event of a claim.

The following people all have described themselves recently as "Management Consultants" when trying to buy professional indemnity cover - a lady who provides advice to management on the movement of their investment funds, a chap who advises managers about alarms and security devices (and installs them) and, my personal favourite, the lady who advises the management of one particular European army on their strategic nuclear missile programme. Let us be clear, in no way are any of these three professionals "Management Consultants". And, whilst a Management Consultants policy is very reasonably priced, it is not designed to cover the risks that these professions face.

Most Professional Indemnity Insurers offer a range of policy types to cover a variety of professions and it is important that you buy cover for the correct profession. Management Consultants are normally considered by insurers to be those professionals who provide strategic, organisational, purchasing, development advice to their clients. The cover can be extended to cover those consultants who provide Financial, Technical, Engineering & Industrial advice, however for consultants who provide this type of advice it might be more appropriate for a more specific policy such as an Accountants, IT, Engineers or even a Design and Construct policy to be used. The most suitable policy will depend on the depth and level of advice being provided as well as on the particular insurers policy cover.

Some insurers are comfortable to include within the definition of management consultant consultants who concentrate on specialist areas of advice such as Personnel or Human Resources consultants, however care needs to be taken with these professions as some policy wordings have exclusions in respect of the provision of legal advice.

Training consultants can in some cases be insured as Management Consultants, however this depends on the type of training being provided. As a general rule classroom based activities which do not involve any physical activities will be considered, however anything that involves active participation, team building away days or confidence building stunts such as fire walking are likely to be excluded by a basic policy which excludes claims for bodily injury or death.

Company Doctors deserve a special mention. As a rule those consultants who provide mentoring, coaching and careers advice will be covered by a Management Consultants policy, however the Business Turnaround or Merger and Acquisition specialist will need special consideration by insurers and may be more appropriately covered by an Accountants wording.

Interim Managers can be covered by a Management Consultants wording, however not all Interim Managers are considered to be the same by Professional Indemnity Insurers. The manager that goes into a firm to cover a head of department or to set up a new operation for a few months will be viewed very differently to an Interim who takes on a CEO or Caretaker Manager role. Interims who take on an FD role may well need to be covered by an Accountants wording rather than a Management Consultant policy. Insurers will be happier to insure the interim who is not responsible for financial decisions or the strategic direction of a company.

When buying Professional Indemnity or Professional Liability Insurance it is always best to take independent advice. PI Expert is happy to provide advice to Management Consultants, Business Advisors, Interim Managers, Business Doctors and all other professions on their Professional Indemnity Insurance requirements. Please feel free to give us a call on 01825 745 410 or online at www.piexpert.co.uk

Are your sums right?

There have been a number of changes over recent years to the Buildings Regulations in respect of the construction of buildings.

Part L (conservation of fuel and power) came fully into force in October 2010 and this raises the standard in relation to the allowable thermal emissions form buildings. Part K (equality) and Part E (sound insulation) have also impacted on the rebuilding costs, and therefore insurance value, associated with older buildings.

Although the regulations do not apply retrospectively, they would apply in the event of a structure having to be rebuilt, substantially repaired or altered following on from a fire or insured event. The cost of replacing an older poorly insulated building of a lightweight design with a modern, compliant structure can add 50% or more to the cost of replacing with a like for like building. These additional costs should be incorporated within the building sum insured on all property owners policies.

For further information about property owners insurance please contact Pam Jackson at Affinity Select Insurance Services Limited 01825 745 410

SRA Announces PI Shake-up for Solicitors

The Solicitors Regulation Authority (SRA) has announced how it plans to transform the PI market and the Assigned Risks Pool (ARP).

Following on from over 300 responses to the consultation document that it issued the SRA has announced the following changes:-

• The amount of time that a firm can be in the ARP reduces to six months form 12 – effective October 2011
  
• From October 2012 the ARP will be jointly funded by the qualifying insurers and the profession. Liability for claims arising from firms who are uninsured will transfer from the ARP to the Compensation fund
  
• From 2013 The ARP will be replaced with a system whereby insurers will offer a three month extension to existing policyholders who are unable to obtain cover for the following year.
  
• The single renewal date for all firms will remain as currently until at least October 2013 to facilitate these changes.
  
• Financial Institutions will be required to comply with the same minimum terms and conditions.
  

A policy statement will be issued on Monday to confirm the details. Details of the original proposals are available at www.sra.org.uk/sra/conultations

IT Professionals – Why Should You Use A Professional Indemnity Insurance Broker?

Quote from a live twitter feed a few days ago - "PI Insurance – quote on line £268 – quote form a broker £2,568 – compute that!" It's a good question and highlights beautifully the dangers of assuming that all Professional Indemnity insurance products are simple contracts which can be purchased as a commodity without the need for specialist advice.

The individual posting this question is an IT professional providing predominantly web based services such as Internet Marketing, SEO,
Web Hosting and Web Design Solutions. He is a sole trader with experience in PHP programming and transport model programming using Fortran, Visual Basic and C languages. He describes himself for the purposes of his insurance proposal as a "Computer Consultant".

This case highlights a number of misconceptions and problems that arise when trying to purchase Professional Indemnity Insurance. The first issue is one of language – what you understand by way of your job description may not be the same as a Professional Indemnity insurer. Take for example the "Management Consultant" whose main role was to "Advise Management" on the technical specification of Missile Systems. Without going into too much detail what was needed in this case was an Engineer's Professional Indemnity policy, with some very special extensions. What the client tried to buy was a Management Consultant's Professional Indemnity policy which, whilst much cheaper, would not have provided any cover in the event of a claim.

In the case of our "Computer Consultant" we need to consider what insurers mean by way of Computer Consultant. IT companies and the services they offer are not easy to categorise, largely due to the wide range of business and industrial environments in which IT professionals work. On line quote engines, which maybe ideal for the most simplistic IT professional, will have significant limitations in respect of the protection they provide and the business activities that they cover. They are unlikely to provide adequate cover for anything more than the most simplistic risks.

The problem facing buyers of professional indemnity insurance on line is that there is, from a risk perspective, a world of difference between a firm which provides advice on packaged hardware and software to a firm that provides bespoke solutions or internet services or financial trading platforms. There is a significant gap between the cover that is required for the different business activities.

What insurers are looking at when they consider an IT professional for Professional Indemnity Insurance is the potential that the particular firm or individual presents for immediate financial loss and other consequences if data is incorrect or a system fails or becomes unavailable for any period of time. Much depends on the precise function of the software and the commercial application it is being used for. In the case of the IT consultant selling packaged hardware and software there is clearly less risk to insurers of a claim being made than where a bespoke system has been provided. Equally a web designer has less chance of being sued than a company providing web hosting services.

The main areas that give rise to litigation against IT companies are Failure of the software / system to do the job which it was intended for (fitness for purpose), Failure to deliver the system on time, Failure to deliver the system to budget. There are also smaller, but more frequent, claims which relate to breach of copy-write, plagiarism and libel. Typical claims involve a client that withholds or claims for return of the purchase price / fees paid, an action against the IT company for the direct financial and consequential losses arising from the negligence of the IT company, damages for breach of copy-write or libel. Breaking down the risks in this way it can be seen that the simple computer consultant selling his packaged hard and software solutions is less at risk of a major claim than our programmer, web designer or internet hosting company.

Consideration also needs to be given to the geographical exposure that a risk presents. The basic IT Consultants package is likely to restrict cover to domestic territorial limits, or provide worldwide territorial limits, but domestic jurisdiction limits only. This can be confusing, but the distinction is very important and it is vital for the IT company to understand the limitations of their policy.

In layman's terms the territorial limits are about which countries you can work in, the jurisdiction limits are about the countries in which you will be able to claim for legal representation in the event that a claim is made against you. It is important to realise that these may be different.

For an IT consultant specialising in hardware or software sales in the UK with no overseas exposure, UK territorial limits and UK jurisdiction maybe fine, however a web developer may well need Worldwide cover for both Jurisdiction and Territorial limits even if he only works in the UK for UK companies as his work will be open to claim throughout the world.

Another factor that insurers will consider when underwriting an IT Consultants Professional Indemnity policy is the type of client that they look after. Areas of particular concern to insurers include clients in the financial sector, games developers, trading systems, process control systems, Application Services Providers and Internet Services Providers, Managed Service Providers and Mission and safety critical systems. There is also a direct relationship between the size and complexity of the work undertaken by the IT professional and the resultant exposure to potential claims. Underwriters will charge a significantly higher premium for this type of work, particularly if it is carried out US or Canadian firms.

In most cases Insurers' first line of defence will be a written contract between the insured and their client. It is very important that smaller firms take the time to understand the extent of their policy coverage in this respect as some policy wordings can exclude contractual conditions, particularly if they are overly onerous or include consequential losses. One of the benefits of using a professional Indemnity Broker such as PI Expert will be that the broker will be prepared to advise on policy coverage for individual contracts as and when they arise. This is particularly of benefit for smaller IT firms who are asked to sign onerous contracts with larger customers. This can be vital as insurers often expect that consequential losses will be excluded, or at least limited, by the IT company in their contract terms and conditions.

So what else should the IT consultant be looking for when they buy Professional Indemnity Insurance? Most policies will provide insurance under several different heads of cover. These are typically Professional negligence, Negligent misstatement or negligent misrepresentation, Failure of software to be fit for purpose, Infringement of intellectual property rights, Breach of confidence, misuse of confidential information, Defamation, Dishonesty of employees. Whilst a good policy will provide cover under all of these headings, some basic policies may cover only one or two items of coverage only.

 

Another factor to consider is how claims are handled. Many IT Professionals expect their professional indemnity policy to automatically pay out that if they identify that they have made a mistake or an error, however most basic policies require a claim to be made against the IT Firm by the client before the policy will respond. This will take time and imposes a burden of proof of negligence on the IT firm's client and normally results in the loss of the business for the IT firm. It is possible to buy enhanced cover – often called first party cover – which provides ability in the wording to allow insurers to put right a problem discovered before a loss occurs. In this case it is the policy holder, not his client, who will make the claim.

 

An IT professionals cover should always be on an "Any One Claim" basis. Some basic Professional Indemnity policies will seek to limit liability under the policy to an "Aggregate" or "In All" limit. An Aggregate limit can be disguised by some insurers as an "Any One Claim and in the Aggregate" basis of cover. Another trick is to include defence costs within the claim limit – these should always be shown as "Payable in Addition". Ideally the excess should not apply to defence costs as this is where most claims will start and finish. I have seen one policy which is being sold to a very large group of IT professionals which whilst it provides a limit of £1,000,000 on an Any One Claim Basis, the cover is limited to £2,000,000 in the Aggregate for all of the members of the group – meaning that only two large claims are needed to blow the cover for the remaining members.

 

The final point to consider is the policy coverage in respect of past work. This is called "Retroactive cover" and is necessary because all Professional Indemnity policies are written on what is known as a "Claims Made" basis rather than as is more usual (in motor or office insurance) a "Claims Occurring" basis. In simple terms you need to have a Professional Indemnity policy in place not just when you do the work, but also when a claim is made against you. The cover needs to be continuous. This is important to remember when pricing work as most claims tend to come after a contract has been completed and you could occur after the business has finished trading. You should therefore be budgeting to continue buying Professional Indemnity cover for at least five years after you cease to trade.

 

Retroactive cover is either shown as "Inception", "None" or with a date. If the policy states "Inception" as the retroactive date then you are only covered for the work that you have done from the start of the policy. If it has a date then the cover under the policy includes all work that you have done in the past back to the sated date. If the retroactive date is "None" then the policy covers you for claims made during the current policy year for all work done, including in the past, without time limit.

In most cases if we are looking at the basic premiums then you can be sure

In conclusion returning to our Computer Consultants post I have to agree that what he is saying is true – it is possible to buy an insurance policy for £268 for a "Computer Consultant". The problem of course is that there is not a hope in heck that it will provide any cover in the event of a claim. What he actually needs is something completely different, and yes if he wants to be covered in the event of a claim, it will cost him more than £268, although not necessarily £2,568 as the final price depends on whether he has consulted a broker like PI Expert who specialises in Professional indemnity Insurance with access to every insurer or just one with a small amount of knowledge and limited access to the market.

Buying professional indemnity insurance cover is one of the most important decisions that you will make about your business. In a no win no fee world you need to be sure that the professional indemnity insurance cover you buy will protect your business in the event of a claim. With so many different insurers and so many policies to choose from it can be difficult to know what to buy. That's why many professionals turn to PI Expert to help them find the find the best professional indemnity insurance cover for their business at the best possible price. Contact PI Expert by phone on 01825 745 410, by email at enquiries@piexpert.co.uk or check us out on line www.piexpert.co.uk

The Price of Loyalty?

In an age of economic austerity one of the ways that businesses can save money is to look hard at their insurance costs. This is an area which is often overlooked during times of success due to lack of time, understanding or expertise – sticking with the status quo can be the easiest option when your time is consumed servicing increasing sales. In quieter periods however many businesses have the chance to really look at the insurance cover that they need and the value for money that their insurance arrangements afford to them.

A recession can be a good time to carry out a root and branch review – not just because there might be cost savings to be made, but also to check that an insurance program still fits the needs of the business. Many businesses could save money by simply remarketing their insurance portfolio on an annual basis and this can seem to be an obvious course of action in a price comparison world, however there can also be a hidden price to pay in the medium term for what many insurers will see as a lack of loyalty.

Insurers will understand, and indeed expect, a certain degree of price benchmarking, however a business can do real damage to their insurance prospects by over marketing their portfolio. There is a fine balance to be struck between obtaining a fair price and excessive market exposure. The owner of a small to medium sized business, who does not have the luxury of a qualified insurance manager to advise them on their insurance requirements, can easily end not marketing their portfolio sufficiently or over marketing. The impact on the business of the former is easy to guess – the business ends up paying more for their insurance cover than they should, but what of the effects of over marketing?

In the short term over marketing can seem to have a positive impact on the business. Prices are driven down and the business pays less for its insurance cover. This does not necessarily have an impact on the quality of cover that the organisation buys, the effect appears to be on price only. In reality there is a hidden effect of over marketing and any short term price gain can be lost in the medium term. There is a quantifiable cost to Insurers for clients who shop around each year as opposed to those whose business they are able to retain for a period of time. To understand the value of loyalty it is important to understand how an insurer structures their premiums and how they achieve pay back on their investment.

The first thing to understand it that it is more expensive for an insurer to put on a piece of new business than it is to write a renewal. This is because when a new policy comes onto the books an insurer must take the time to take a detailed look at the proposal and put together a pricing strategy. At renewal the insurer is simply reviewing its previous decisions and looking to see if there are any major changes in the business that need to be factored into the rating structure. The time taken on a renewal is therefore significantly less than on a piece of new business and this provides an instant saving to insurers.

The other factor which reduces the cost of renewals over new business is that, providing the pricing strategy is right, an underwriter can expect the majority of the renewals to result in confirmed business (typically 90% or more), whereas new business quotes tend to have a much lower conversion ratio (typically 20 – 30%).

In many cases an insurer will not make any money in the first year that they hold a particular risk. It therefore makes economic sense for them to retain a piece of business over a period of time. It is in their interests therefore to work with clients who are prepared to be loyal and want a long term relationship with their insurance providers.

Insurers can and do become very frustrated by customers who they see marketing their business every year. The client who uses two or more brokers each year to bench mark their premiums is an even worse proposition. This can result in an insurer seeing the same piece of business several times over a short period of time. Insurers can and do remember what they have quoted on and to see a piece of business several times in quick succession sticks in their mind – particularly if they see the same piece of business several times each and every year without ever getting the business.

The affect of this over marketing is to end up with a hugely disaffected underwriting base. Quote requests will begin to be returned marked "no quote – annual marketing exercise". This can quickly reduce the number of markets prepared to look at a piece of business and as the supply base narrows so the actual price that the business pays for their insurance cover increases in the medium term.

The other effect of over marketing can be seen in the event of a claim. Every business that buys insurance does so in the certain knowledge that claims are something that happen to other people so this is not an area that need concern them, however claims do happen at some time or other to us all, whether we are at fault or not. If a claim at some point throws up an issue on which insurers have to take a view on whether the policy provides cover or not we will want the insurer to give our claim the benefit of the widest interpretation of the policy. There is no doubt that insurers are more inclined to take a generous view in cases where a client has been a long standing customer than in those cases where a client switches carriers each year.

Notwithstanding the above it is sensible and indeed healthy for a business to review and periodically remarket their insurance portfolio. There are ways and means of effectively marketing an insurance portfolio on a regular basis to ensure that the best price is obtained for the cover without causing disaffection with insurers. For an SME the most sensible solution is to use a broker, such as PI Expert, to manage this for you.

Your broker should work with you to firstly understand and then present your business effectively to insurers. The broker should use their expertise to narrow down the markets which are appropriate to your business. You should expect the broker to go to a number of markets on your behalf to get the best price for you, It is surprising how many brokers (including some of the largest players) only use a limited market for placing business – this might be just one or two insurers. Whilst limiting their market to a few players will result in higher commission for the broker it is unlikely to result in a better premium for your business.

When instructing a broker it is wise to take time to find out which markets they will use. Ideally use a whole of market broker. Brokers such as PI Expert are totally independent and will carry out a full market search. Ask also to see proof of alternative quotes.

Your broker should be reassessing your business every year. This does not necessarily mean that they should go to market every year to see if cover can be obtained more cheaply – in some cases this is counterproductive – the broker should use their knowledge of whether you are on good rate or not. You should however ask your broker what they plan to do with your renewal and ask them to justify their decision if they are only going to a limited market or not marketing your renewal at all. Be very suspicious of the broker who simply offers up the same insurer year on year with a small price increase each time.

You should test your broker out every now and again. Do not do this every year, because not only does it annoy insurers to see the same piece of business more than once, brokers also take a view on the client that goes to market every year too. If you are going to go out to market with another broker be sure to give your holding broker a chance to quote for your cover first – there is nothing more frustrating for a broker who has worked with a client over a period of time to find all of the markets that will quote have been blocked by an attacking broker prior to being given the chance to do the job properly for the client. A simple rule of thumb is to let your holding broker have a few days head start on the quote process before you ask an alternative broker to come up with a quote.

Be fair to all parties. If you have instructed an alternative broker to obtain competitive quotes for you be prepared to move your business. In common with many brokers PI Expert does not charge a fee for obtaining quotes and this can be a costly and time consuming job. It is only fair therefore for you to be prepared to move your business if the alternative broker is able to obtain significantly better terms. You will do your business no favours by sticking with a broker whose strategy is to allow another broker to do the hard work of obtaining the best price for your cover and then price matching the best deal you are able to obtain elsewhere. The broker who has done all of the hard work and not obtained your business is unlikely to want to try again the following year and there is no pressure on your holding broker to do more than offer up existing insurers terms.

Be claim aware. If you have had a claim during the year it is sensible to stay with your holding insurer at renewal. If there is a problem with the claim then insurers are more inclined to look favourably on it if you have shown loyalty to them at renewal. There is an unwritten understanding between insurers that expects policyholders to give the holding insurers at least some opportunity to make their money back after a claim has been paid out and many will take a dim view of an insured who tries to move their cover at the renewal which immediately follows a claim being made. This may affect your chances of obtaining a quote at all in the future.