As you will know, the start of October tends to mark an important financial deadline for many professional practice firms, especially in the legal sector, as it’s traditionally the time when they have to renew their Professional Indemnity Insurance (PI).
The insurance is a requirement for lawyers and solicitors, but it also applies to a variety of professions such as accountants, architects, engineers and financial advisers. Professional Indemnity Insurance is also a growing cost for healthcare businesses like dentists and doctors. It provides businesses with vital protection against any unforeseen and potentially costly circumstances, such as in the event of legal action.
However, premiums in the legal sector in particular are likely to grow again this renewal season, having increased by an average of 27% for all firms during the Spring renewal round. The continued rise in premium costs is the result of a turbulent global market and a significant number of catastrophic events, not least the COVID-19 pandemic.
Because so many professional firms have faced significant financial and operational challenges over the last 18 months, a premium increase of this level could put further strain on the cashflow of many businesses, especially if the opportunity to spread payment across the term of the insurance is not available.
Traditionally, the option to spread PI premium payments over a longer period has been possible through facilities offered via a small pool of niche financiers, banks and alternative lenders. However, these lenders have also endured their own challenges over the last few years, with many reducing their appetite for lending to the professional sector.
Many of those lenders have shifted their attention away from the so-called ‘paper professions’ like lawyers, accountants and architects, and instead are focusing on medical businesses such as dental, optical and pharmacy.
Other lenders have set stricter lending criteria that make terms better for larger professional practice organisations, making it difficult for smaller firms to arrange funding.
Part of what we do at Recognise is support UK SMEs, especially those businesses that have not been well served or are being ignored by the mainstream banks. And we’re acutely aware that the professional practice sector, especially those firms based in the regions or who operate small but vitally important local and high-street practices, are a hugely underserved group of flourishing businesses.
Ironically, despite these businesses being mainstays of the local economy, it is a sector where the bigger banks and other independent financiers have moved out and left huge funding gaps.
Therefore, as part of a new product offering, we have developed a professional practice loan to support this market across a wide range of funding needs. the loan can be used to fund Professional Indemnity Insurance as it can be used to run in line with the term of the insurance, whether across a 12-, 18- or 24-month term.
Importantly, not only do we have these funding solutions, but we also understand the needs and the challenges of the Professional Practice sector. Our specialist team is immersed in the legal sector and healthcare sectors in particular, and we are happy to offer face-to-face support and service.
Firms will be making decisions right now about how they fund their PI renewals, and indeed – in a market which is hopefully starting to benefit from the withdrawal of Covid-related measures – there may also be a need for funding in order to look at expansion plans, bringing in new resources or adding technology in order to make the most of the business opportunities that exist.
The good news is that, in these times, firms need not have to rely purely on the big banks for funding. Other options exist and come with a relationship-focused approach that, in the long run, can work for both short-term needs and meeting long-term ambitions.
Robert Hulse is Head of Professional Practice at Recognise Bank
