How to protect risks to cashflow with insurance

Posted by 7 June, 2017 (0) Comment

PROTECTING CASH FLOW2

This blog is about protecting cash flow, especially if those that owe money go bust.

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What if a buyer goes bust?

With the global recession and Brexit, business owners are having to consider the impact this could potentially have on their business.  What if a client goes bust?  If a company is owed significant amounts of money from clients, it is a major risk to cash flow.

Gareth came to us with these questions and more.  He knew exactly what he wanted from an insurance.   Dealing with imports he needed peace of mind that he had cover if stock went missing.  He also needed to know that his invoices were covered if products didn’t reach the consumer. We took time to completely understand Gareth’s business to a granular level.

What if they don’t want to pay?

Business Owners need confidence that they are going to get cover that matched their needs and not be sold an off the peg insurance that doesn’t quite do the job.  After negotiating with underwriters we carefully selected the options that matched Gareth’s broad requirements.

One option included protection against protracted debts or liquidations relating to companies that had been invoiced. It often helps with obtaining quicker payments, from companies that are happy to share the debt, when the risk of a default is backed by credible protection.

What are the risks when reducing risks?

Following up with a meeting to go through the small print and fully explain terms, conditions and exclusions is a must.  We tell it like it is, the good and the bad so our clients can make informed decisions.

The devil is in the detail and it is often a surprise to everyone, including us, when it is interpreted based on a particular business. It’s our duty to actually recommend protection that fits each client and the most appropriate has to meet their needs, rather than provide the dreaded false sense of security.

 

Wrap up; Small print can be seen as an enemy yet there’s a lot that can be learned from it. Read our blogs on the different types of policies available. I used to be surprised at the number of people that told me that they had already covered everything, then sent me documents riddled with exclusions. I now know it is a common occurrence in our sector.

Top tip; Some people find out when it’s too late.Review your debtors regulary and watch out for slow payers and avoid companies that are shown as risks on credit checks

Categories : Accountants Insurance,All Risks Insurance,Business Insurance,Company Insurance,Customer Service,Legal expenses insurance,Liability Insurance,Litigation expenses insurance Tags : , , , , , , , , , , , , , ,

Flatterers deceive UK start-ups

Posted by 19 April, 2014 (0) Comment

A spectacularly large US company flattered a UK start-up with a huge contract which was eventually signed and secured. This would give them the capital they need to multiply their success. The contract wasn’t exclusive and the start ups web application was valuable to many similar companies. A fantastic “result” and only two types of insurance were required by the US company.

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Contractual responsibility

 

The contract issued by the Americanclient had 2 pages making direct reference to the type of due diligence, risk management and business insurance required of the start-up. The rest of the contract revealed 26 further liabilities and requirements that were, or would become, necessary.

Not all were manageable for a small company with limited cash flow. The really fine points of the contract referenced this exact point and made it clear they would take full and furious legal action if something went wrong. Ouch, a soft landing is required so we received an introduction.

Part of the liability related to the website, which was provided as a service, and had to be operational 99.9% of the time. The US company staff would be trained to use it and then supported 24/7. It had to work and the contract made it clear that they would want compensation for any downtime over 0.01% in any one year. Keep in mind that one way to compensate is not charge fees that are due.

Penetration testing must be the answer

 

It helps work out weaknesses today yet doesn’t account for advances made by hackers tomorrow. IT Systems security methods of suppliers aren’t always reliable and data theft was the main concern of the US client. They made the UK startup contractually liable for the costs of notification to the relevant authorities and those whose personal data is compromised.

This is a really tough figure to try and quantify because few own up when they have a data breach so the statistics cannot be compiled. Contrast that with fires where it is easier to quantify losses.

That won’t change just because it becomes a must to do (new regulations are due to land in the EU in 2015). So if some Herbert got at the data, the US company would have to spend to meet US regulations and the UK start-up could be ruined by the losses. Identity theft costs vary from person to person so it really is a difficult number to calculate.

Legal liabilities change across borders or state lines

 

The chances of a breach are minuscule, the costs ridiculous. The damage to brand immeasurable. Get a lawyer to get legal on your contracts and they’ll close the gaps. Some clauses don’t hold water in the UK yet US companies issue proceedings where they want. The contract formed a vicious circle when the statement of work and suppliers agreement were reviewed together. No stone had been left unturned and the US company had a fair minded legal team. That is not always the case.

However, there was a liability of millions and the supplier of the application’s infrastructure were only going to cough up £182k if they failed to maintain their supply. Worse still, the infrastructure wasn’t easy to transfer to a new supplier and a 30 day window tied the start-up down. No fix in 30 days and the US contract terminated automatically. And further contracts would not have been issued by them or anyone else.

We deal with cyber risk every weekly basis. It rarely touches the smaller business, yet their suppliers are at risk. Cloud sounds great yet it is not as solid as your own database with your own security. The solutions are a contractual nightmare.

Wrap up: It is not unheard of for a large company to issue a contract to a start-up, allege an error and drown them in legal proceedings. This is because they can then strike a deal which leaves the start-up Directors free of debt if they give up their Intellectual Property. Only in America? No! Uk companies do this too. Does Directors protection work in these cases? No! See why here: http://www.cobinecarmelson.com/wp-content/uploads/2011/11/What-are-Directors-real-risks.-CCLv5-URL.pdf

Top tip: One digital games company signed an NDA and found the other signatory copied their ideas and started selling their titles. It cost £300,000 to force them to stop and compensate the original designer. There is no point getting someone to sign an NDA unless you have the means to enforce it !

Categories : Accountants Insurance,All Risks Insurance,Business Insurance,Company Insurance,Design Insurance,Domian name protection,General Requirements,Intellectual Property Insurance,Legal expenses insurance,Liability Insurance,Litigation expenses insurance,Patent Insurance,Solicitors indemnity,Solicitors insurance,Trade,Trade Secret Protection,Trademark Insurance Tags : , , , , , , , , , ,

Double agent leaves tenant between a rock and a hard place

Posted by 9 February, 2014 (0) Comment
This article is about tenants, builders and surveyors. One of them behaved badly when an insurance claim occurred and it’s not who you think. Insurance fraud is a huge problem for all of us. This article gives you some clues as to how you can avoid getting caught up, and caught out, when someone thinks it’s OK to commit fraud.
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Leaks can be a real drag

 

A last minute call before Christmas comes from a client in a mini panic because the client facilities at their studio have got pools of water where it shouldn’t be. The area has to be sealed off because of the leak and the business might have to close, albeit temporarily, if gets any worse.

This is a straightforward issue for us, yet it could be the first time a client is going through this scenario and prompt assistance and advice is what they need. We provided the reassurance that we promised, confirming that the damage to their property was covered. However we instructed them to contact their landlords insurance people because the leak had not sprung from nowhere. It was likely that both insurers would need to be involved. This is quite common and, in this case, a managing agent handled insurance affairs for the landlord.

Property Manager or Mangler?

 

After a fashion, I received another call from the client explaining that the property managing agent did not want to offer much assistance. They simply said “the builder must be responsible”. I reminded the client that their landlord had cover for investigating leaks, which had become clear when we checked their insurance provision at the beginning. Armed with this information the client/tenant felt confident in contacting the managing agent and pressing their point home. Subsequently, a surveyor arrives and determines that a pipe has not been correctly sealed, causing water to leak and bubble up through the flooring. Luckily it was water rather than waste that leaked, so the damage wasn’t too messy.

In the ordinary course of things, this would have been simple from here on in. The landlord’s insurance pays for the tracing of the leak and the builder repairs the pipe they installed defectively and the client has insurance to repair the resultant damage to their flooring, etc. The managing agent had other ideas.

Why do people think it’s OK to to defraud insurers?

 

The managing agent contacted the tenant and asked them to pay for the surveyors invoice. When they refused, because it is not their responsibility, the property managing agent said “completely off the record, it will be much easier to do business with us if you tell your insurance company that this was an uninsured part of the landlord’s policy, or write a letter confirming that there were more damaged areas than was actually true”. They wanted to recover the cost of the surveyor without resorting to their own insurance. Or rather, the landlord’s insurance. This seems daft because it’s not their insurance to worry about. It’s the landlord’s! Doing their job properly means presenting insurance claims to insurers in order for them to be settled promptly, fairly, and keep the premises in good shape.

What we know is that this happens all too often. Regrettably, property managing agents have to have their fingers in the landlord’s insurance pie, and they do deals with insurance companies, not always with the landlord’s knowledge, that means that they get paid extra if they do not make too many claims. This is on top of the income they receive for managing the insurance, which is paid to them by the insurance company and allows them to charge the landlord less for the overall management of the property. To landlords this is either something they are unaware of, or dressed up as a good deal. However, they don’t seem to realise that it is going to cost them money in the long run if the property is not well looked after.

Surely the managing agent should be looking after the property rather than trying to earn money out of the insurance that they don’t even pay for. People find it hard to believe that this happens, yet property managing agents seem quite willing to hide the commissions they receive from their clientele and mess up claims situations when it suits them. At the end of the day they always blame the builder or the tenant. Who is the landlord going to believe?

Top Tip: Always check the insurance arrangements of a premises you are about to buy or lease, because you will find insurance history can paint a different picture to the particulars you were originally shown.

Wrap Up: There are some great property managing agents out there yet there are also plenty of rogues. Accountants have told me that they have recovered many hundreds of thousands of pounds from property managing agents who stitched up the owners of properties they looked after. It’s not just on insurance, they do the same on maintenance issues and when repairs are required. Take a closer look at the bills they are sending and see if you can spot any trend that doesn’t make sense.

Categories : Accountants Insurance,After The Event,All Risks Insurance,Building Contractor,Business Insurance,Company Insurance,Contractors Insurance,Customer Service,Design Insurance,Domian name protection,General Requirements,Health & Safety,Intellectual Property Insurance,Legal expenses insurance,Liability Insurance,Litigation expenses insurance,Patent Insurance,Personal Insurance,Solicitors indemnity,Solicitors insurance,Trade,Trade Secret Protection,Trademark Insurance,Uncategorized Tags : , , , , , , , , , , , , ,

Insurance claims departments grill their clients

Posted by 13 December, 2013 (0) Comment

Not all insurance companies treat claimants the same. This article is about what happens when an insurance company settles a claim for a break-in, the methods they use to reduce claims, and the daft things they do afterwards.

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“Someone’s breaking in across the road”

 

A man is up later than he should be. He hears a loud bang, and peers out his front room window. He sees that there are some shadowy figures and torchlight inside the office premises across the road.  Stopping himself from rushing across the road, he calls the police instead. He took the sensible option. By the time he finishes the call to the police the burglers are gone. It’s a classic commercial theft. Kick the doors in and take whatever isn’t nailed down and can be sold for cash.

The police contact the owners and the premises are secured, which is difficult to do when a UPVC door has been ripped from it’s hinges! Yet it’s a temporary measure, a more permanent fix can be worked out later. Computers, monitors and petty cash have been taken.

Insurers step up… then down again

 

The client contacts us in the morning and we make the report to their insurer, who won’t do anything until the crime reference number is allocated by the police. Armed with this, we make a detailed report explaining what items have been stolen and what damage has been caused. The people handling the claim seem amiable. A few hours later we receive the email acknowledgement, yet they start as they mean to go on requesting why my client kept so much petty cash. The irony.

It’s this sort of nit picking that really annoys people. They didn’t ask how much petty cash they had before the break in. Indeed, they even make a generous allowance for it as a policy benefit. Yet they use it as a tactic to delay making a payment. It wasn’t the only tactic, they argued about the broken door too.

Settlement achieved

 

It took a few days to resolve, yet the experience left a sour taste with the client.  “How will they behave if we have a major loss?” I reassured them that this company was better in the big losses, which is why we had chosen them. It’s just that you need to have experience in order to push the small ones through, because this company uses smaller claims to train their staff. They don’t tell you that in their literature before you buy from them – we have the inside track.

Once the client has his full payment he asks me to look for alternative insurance providers, which is understandable! Who wants to be contractually tied to someone that makes it difficult together what the contract is supposed to provide? Especially when it’s before a problem with the terms and conditions. A “can-do” attitude means a lot to those who want their businesses to run smoothly. They avoid suppliers that make their life difficult after advertising that they would make it easy. Insurers could take note, but they won’t. This insurer said they would be happy to lose this client because it was “petty cash” that made them attractive to thieves. Poppycock.

Wrap Up: There are hundreds of reasons why insurers are slow to pay out, some are procedural, others personality based. As Forrest Gump said, claims departments are like a box of chocolates. You never know what you’re going to get……unless you have opened them before.

Top Tip: Make sure your adviser has handled similar outcomes to those that you’re worried about if you really want the reassurance that insurance allied to service can provide.

 

 

Categories : Accountants Insurance,After The Event,All Risks Insurance,Building Contractor,Business Insurance,Company Insurance,Contractors Insurance,Customer Service,Design Insurance,Domian name protection,General Requirements,Health & Safety,Intellectual Property Insurance,Legal expenses insurance,Liability Insurance,Litigation expenses insurance,Patent Insurance,Personal Insurance,Solicitors indemnity,Solicitors insurance,Trade,Trade Secret Protection,Trademark Insurance,Uncategorized Tags : , , , , , , , , ,

How can you reduce your liabilities?

Posted by 23 November, 2013 (0) Comment

This article is about liability, sometimes “called” indemnity, how to reduce it, why it is required and how do you work out what yours is? It’s a long one yet winning contracts with unclear liabilities can lead you to long unfulfilling journey.

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I’ve just won a contract!

 

We are called every week by people who make the above exclamation. It’s great when client win new contracts, they get so excited when they start working with one of the ‘big boys’. However these contracts are often weighted towards the bigger company in the “partnership” and have severely onerous terms and conditions. It will never cease to amaze me how many people sign a legal document without reading it, having a expert interpret it for them or seeking any form of legal advice. However it happens every week, I’ve even done it myself when there’s little at stake. Lesson learned! We now know enough solicitors to advise clients when the need arises. Solicitors have different specialisms and expertise and we try to help, or at least signpost, all the enquirers we hear from.

One of the most important contractual areas to negotiate upon is the level of liability you are being asked to carry. Many contracts have “boiler plate” wordings which have ridiculously high levels of insurance protection demanded from small companies as well as medium and large. The first point to negotiate on is the amount of protection they expect you have in place. This is because insurers will, typically, charge a rate for every £100 or every £1000 of cover that you require. A higher level of protection means an increased insurance investment, which might not match the new risks.

Demands for insurance documents

 

A lot of contracts state that “you must have insurance a, b or c”. Many business owners start looking as soon they read this, not realising that further on the contract will stipulate that the full insurance documentation must also be provided. So they contact an insurance provider and arrange cover quickly without checking how long the documents will take to arrive.  You will think insurance providers can issue documentation very quickly. This is not the case, some of them have several levels of check on their policy documentation before they are issued. Others prepare the documents in one country and issue them from another. Some only issue documentation online. Others seem like they’re still using pigeons that carried messages during WWII.

This doesn’t help when the people fulfilling the contract require payment. If a contract says you must have insurance a,b or c and documentation, you are unlikely to be paid until you have provided documentation. This has caught out people who either didn’t bother arranging insurance at the outset, yet told their client they had, or they arranged insurance with a provider that could not issue documentation promptly.

Businesses are not likely to go bust because they failed to arrange insurance. But not all insurance can be paid in monthly instalments, so cash flow needs to be managed.

How do I work out my liability?

 

The “boiler plate” contracts mentioned above have high limits because it is often difficult to estimate. Sometimes the actual amount of liability can only be determined following litigation because claims become so complicated. Not all contracts ask for annual insurance. Some I have seen have insisted that insurance is arranged and then maintained for 12 years after the project was completed. This protected the large company against issues that arose later in the day. It is a contractual requirement and there is not much use accepting a contract for £144k income, if the insurance premium is £12k and you are required to keep it in force for 12 years. Some companies have accepted these terms because they were so confident that they would continue to get business from the company they just started to work with. Not all businesses survive taking this type of risk.

We have developed a method that helps us understand the liability businesses are asked about and they, with the help of their legal team, negotiate what they can reasonably reduce it to.  As a business owner, I like to have advisers who can answer unusual questions when the need arises. It reduces my liability when they help with the things I know that I don’t know.

Wrap up: Winning contacts is great as long as you understand the liabilities that they bring into your World. Don’t sign anything until you have read everything, I know that it isn’t easy. Ask for help with interpretation of things you don’t really get and ensure you understand exactly what you are getting into by signing on the dotted line.

Top Tip: It’s very rare that people make mistakes when delivering contracts. The most common issues are when people allege something has gone wrong, hide a mistake, fails to own up to their own error or vindictively blame people  they have fallen out with. The blame culture isn’t a new phenomenon, yet it is here to stay.

Categories : Business Insurance,Company Insurance,Contractors Insurance,Liability Insurance,Personal Insurance,Uncategorized Tags : , , , , , , , , , , , , , ,

What is the difference between indemnity and liability?

Posted by 26 October, 2013 (0) Comment

This article is about indemnities and liabilities, why they are often confused and what you can do about it.  I’ve lost count of the number of times people have contacted me, initially requesting an indemnity protection, and it transpired that it would never have done what they wanted it to.

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What is an indemnity?

 

Rather than getting technical I am trying to put this in layman’s terms. I am giving advice to people on how to reduce risks, arrange insurance policies and get them to pay out when the business needs them to, or defend the business. So if someone asks me to arrange protection for a hotel which would costs £3.6 million to rebuild, they expect me to get the insurance company to pay out if a fire breaks out.

If I fail in my professional duty to provide the protection they requested, I have no doubt that they would take legal action against me, and rightly so. The cover I have is called an indemnity and its designed to maintain my financial position even if I do make an error and something terrible happens as an consequence. That is the principle, putting me back in the position I was in before the error occurred by covering the financial loss. Loss of reputation is another issue and there are many ways of handling that hot potato.

What is a liability?

 

A liability, in layman’s terms, is more of a legal responsibility rather than a professional one. Companies are liable for the cost of compensation for employees who are injured at work. Naturally, people that undertake construction projects (or other outdoor work) are liable to members of the public if they cause damage, an injury or an illness. Read about the Jaguar car that was melted by a new building in London.

Some miscreants think they can buy the cheapest liability protection on the market, rather than one that is fit for purpose, and if someone is injured or becomes unwell because of their negligence, they will simply close their businesses. One gentlemen told me he would “pack up and go home”. Little did they know that they are also liable as directors and I would certainly have no qualms about talking to the director of a company that hadn’t adequately protected loved ones in a working or public environment.

If they have not taking care of their own insurance, they might have to sell their own assets in order to pay for someone else’s long term care. It is enshrined in UK law that the person causing an injury or an illness is “liable” for the cost of compensating the injured party. This is an incredibly rare occurrence so rates are low.

Iamconfused.com

 

With so many people doing research on Google its not surprising there are a trillion opinions about what is right for each business. The only real way to assess whether a liability cover should be preferred to an indemnity is by thinking about who is likely to take action against an entity and why would they even think about doing so. Think about near misses that have happened, check your accident book or your complaint register, or ask your customer service team what the closest calls were.

Once you have done that speak to a lawyer and find out how much it would cost to defend allegations because you will not want to pay out willy nilly and become a target for spurious claimant or professional claim management companies. They have no qualms about targeting a business that have been quick to make a settlement in the past. Once a lawyer has identified the possible defence cost and likely compensation awards based on recent “case history”,  you’ll be in the position to assess whether you need protection and what type is going to be the best fit.

Wrap Up: Indemnities and liabilities are like widgets to the man in the street. How do you know the difference between the two until you have compared them? Professional indemnity is compulsory for some professions in the UK, including mine, tune in next time for some examples.

Top Tip: Do not rely on your terms and conditions to protect your cashflow. They will possibly reduce the amount you end up paying or losing to someone with limited legal resources. They are of little use when someone with unlimited legal funds has got really upset and is gunning for you or becomes insolvent and runs from you.

 

Categories : Accountants Insurance,After The Event,All Risks Insurance,Building Contractor,Business Insurance,Company Insurance,Contractors Insurance,Customer Service,Design Insurance,Domian name protection,General Requirements,Health & Safety,Intellectual Property Insurance,Legal expenses insurance,Liability Insurance,Litigation expenses insurance,Patent Insurance,Personal Insurance,Solicitors indemnity,Solicitors insurance,Trade,Trade Secret Protection,Trademark Insurance,Uncategorized Tags : , , , , , , , , , , , , , ,