PGI Knowledge Centre

People with Personal Guarantee Insurance Double Year on Year

• Men are more likely than women to want to start their own business – 57% of male respondents compared to 43% of female
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• People in London and the South East are most likely to be budding entrepreneurs
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• Those between 25 and 34 are the keenest to become their own boss (66%), followed by those aged 18-24 (55%) but 41% of the over 55s surveyed also have ambitions to start their own enterprise

The latest data shows that three in four of all small and medium size businesses in the UK are carrying some form of corporate debt, with an average borrowing of £200,000.

February 2022: With just a couple of months to prepare for the April 2022 Solicitors’ Professional Indemnity Insurance (PII) renewal season, the Partners/Directors of Solicitors’ firms are being urged to plan for the likelihood that they will need to sign a Personal Guarantee as a condition of their run-off cover. This could put their homes and other personal assets on the line if the firm fails.

February 2022: Our new survey amongst^[i] the employees of SMEs has found that over a third of firms (34%) took no measures at all to deal with the pandemic over the past year.

12% of respondents said the business they worked for actually increased headcount during the past 12 months, compared to 14% that reduced staff numbers. Furthermore, 9% of respondents confirmed that within their business, workers’ hours had been increased in 2021 and 8% worked for a business that had found new investment in the past year.

While concerns are rising over the number of businesses now struggling to honour Government backed loans, the findings paint a more positive picture of how far the pandemic impacted the U.K.’s SME community, and how resilient many firms have been in the face of unprecedented operational challenges during the second year of the pandemic.

Todd Davison, our MD, said: “It is hugely encouraging to understand that over a third of SMEs were able ‘keep calm and carry on’ without recourse to Government support or taking their own measures to cut costs. While we seem to be reaching the other side of the pandemic, it will be the survival of the fittest in 2022 as businesses face increased running costs and the continuing challenges over late payment of invoices.  

“We would urge any business owner considering a loan as the new financial year approaches, to prepare for the likelihood that they will need to sign a personal guarantee, fully understand the risks and most importantly how to mitigate them. New funding should not mean unnecessary risk for business owners, particularly after such a tumultuous two years.”  

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.

67% feel mental well-being has been impacted by pandemic

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.”