Are SMEs taking unnecessary insurance risks?
Only a third of SMEs in the UK have Professional Indemnity Insurance (PII) according to new research from Direct Line for Business, leaving many firms at risk should something go wrong.
Although not all small businesses need PII, it is unlikely that all of the remaining 3.3 million SMEs who are not covered would be in such a position.
Instead, they could be left uninsured should a client decide to take action if they have suffered financial losses due to poor or negligent advice.
The two-thirds of firms that have no cover may therefore be left facing issues that they otherwise may have avoided.
Sole traders were responsible for the majority of new policies that were created in the past 12 months, although 235,000 SMEs still signed up between 2013 and 2014.
According to Direct Line for Business, a further 733,000 are planning to take out cover in the next year.
However, the insurance firm has warned that there was a fall in the number of micro and small businesses that took out cover – a factor hidden by the rise in sole trader numbers.
This could present a serious financial threat to businesses if they continue to operate without cover in place.
Legal costs and fines relating to poor advice or lost data could vastly disrupt a company’s finances, and could even leave them requiring business rescue in severe circumstances.
Businesses that offer advice or services that could ultimately influence the finances of another firm should look to ensure they have the right cover in place.
To highlight the extent of the issue, some 320,000 firms claim to have been affected by poor advice in the last 12 months alone.
A company can opt to have PII cover against financial loss or reputational damage suffered by a client as a result of poor advice, thus reducing the risks involved.
Although this peace of mind does come at a cost, it also means the financial security of the company in question is maintained.
By Phil Smith
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