News

Insurers increasingly requiring Personal Guarantees for run off claims

February 2022: As the April 2022 renewal season for Solicitors’ Professional Indemnity Insurance fast approaches, insurance brokers will be under pressure to help the Partners/Directors of Solicitors’ firms cut the risk of personal guarantees now being demanded by some insurers as a condition of cover. We are urging brokers to include our Professional Risks Personal Guarantee Insurance (PGI) policy in their armoury as they face another challenging renewal period.

In recent years, there has been more scrutiny around the financial position of SME law firms with certain participating insurers requesting Personal Guarantees from the partners and leaders of small LLPs and incorporated businesses when offering Solicitors’ Professional Indemnity Insurance. This is to provide the insurer with means of recovery in respect of the run-off premium in the scenario where the solicitors firm fails, enters an insolvency procedure and the insurer is obligated to provide 6-year run-off cover.

Professional Risks Personal Guarantee Insurance (PGI) is an annual policy providing insurance cover for the Directors of solicitors firms that have provided Personal Guarantees to insurance companies in respect of Professional Indemnity Insurance (PII) run-off premiums. The run-off premium is typically 300% of the latest annual PII premium. The cover applies where the run-off premium cannot be met by available cash resources of the firm.

Todd Davison, our MD, said: “During the past year we have seen increasing interest from Solicitors firms for Personal Guarantee Insurance specifically for Professional Indemnity cover. Our Professional Risks PGI helps protect the personal assets of the Directors of Solicitors firms and offers brokers a powerful proposition with commission opportunities as they prepare for the April renewal season.”

January 2022: Recent studies that have found money can buy happiness[i] appear to have been substantiated in a new survey of the employees of the UK's small businesses[ii]. As work from home guidance is lifted, people earning over £40k might be lamenting the easing of restrictions. In the study, these higher income earners were most likely to enjoy working from home and reported lower physical and mental health concerns and worries than lower income workers.

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Loan notes, promissory notes, bill of exchange; whatever you call them, they’re an integral part of modern business and financial management. 

In a sign of the increasing uptake of personal guarantee backed business loans amongst small business owners, and a corresponding need to mitigate the personal financial risks of these loans, we saw policy numbers increase year on year by 143% in October 2021, making it a record month!

The market sectors where business owners and directors have taken Personal Guarantee Insurance over the past month are predominantly construction, wholesale and professional services.

Keir Cox, our Operations Director, said: “Our data suggests businesses are keen to borrow as we get to the other side of the pandemic but may be facing a limited choice of options from lenders, outside of personal guarantee backed loans.  This is even with a strong trading position, as has been the case for the majority of applicants over the past month.

“The increasing demand for personal guarantees from lenders was an issue we foresaw as an outcome of the pandemic but while business owners may have little choice over signing a personal guarantee if they need access to cash, Personal Guarantee Insurance is giving them the confidence to take on a loan without significant risk to their personal assets.”

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For many people wanting to start (or grow) their own small business, a personal guarantee is the only way to successfully secure essential funding, but what is a personal guarantee, and is it a requirement to take our a loan for a new business?

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As a company director, you’re legally accountable for your company’s records, accounts and performance, even if you hire someone else to handle certain day-to-day responsibilities (such as an accountant). The information that you’re responsible for sending to Companies House are as follows:

September 2021: Following news of an 18 month high in registered company insolvencies[i], we are urging the owners of small and medium sized businesses to ensure their personal assets, such as their home, bank account and savings, are protected if their business should become insolvent.