May 22, 2023
This is a new series of articles on improving the value of your law firm. It is aimed at smaller high street practices. The second article is on achieving a sale by reducing interaction with your PII brokers.
What should I tell my insurer about my plans to sell or retire? As little and as late as possible, is the quick answer, with the longer answer appearing below.
We have had a number of instances where sellers have felt it an obligation to notify their insurers about everything to do with the sale of their business. This has been from the moment they have even thought about selling, they have notified their broker, each time they get an expression of interest they notify their broker, and each time discussions get to making an offer they notify their broker. Unfortunately, in these deals to date, firms have not managed to successfully sell. I often hear from law firm owners that they enjoy a really good relationship with their broker, who have been incredibly helpful with everything to date. I don’t doubt this, but I am not sure the brokers always have the firm’s best interests at heart.
I suppose the question is – why would you feel it necessary to notify someone whose sole existence is dependent on you giving them lots of money on an annual basis, and working in a trade where risk needs to be kept to an absolute minimum and making changes to policies results in fees being paid?
Does your broker really need to know anything about your own personal commercial plans, and what business is it of theirs?
Yes, but there are contractual obligations, you may say. I have had sight of some insurance contracts where there is an obligation to notify the insurers of any material changes that will affect the insurance. This includes planned material changes, and in one instance it included even thinking about making a material change.
Whilst all of this may well be the case, it still does not detract from the simple fact that if you notify your insurers of everything to do with a sale of a commercial entity, it is highly likely you will never get a sale, because the insurers will try and get involved at every single step of the way, completely unnecessarily, and the buyers will get cold feet and move in the opposite direction.
We have seen deals where the PII broker has insisted that the buyers of a limited company law firm (with a PII policy in place) have been expected to submit a business plan as a new start up, even though the practice has over 10 years trading history, which was the sole reason the buyers were looking to purchase it.
The usual advice when it comes to insurance is to of course keep within your contractual obligations, but to have a careful think about what those contractual obligations actually are, and how you can affect the deal to stay within them. Give your broker as little detail as possible, on the basis that the more information you give them, the more likely it is either an increased fee will be charged or they will scupper your deal.
There are lots of different routes to affect a sale of a business, and how this occurs is dependent on the structure of your company, but the quick and easy solution to dealing with insurers is to keep them at arm’s length for as long as possible and never forget the old adage that your professional indemnity insurance broker is unlikely to be your friend.
Enquire
