While we’ve already covered contractual requirements with regards to insurance, we’re still seeing businesses sign and agree to contracts without adapting their policies first.
Failing to do this can mean your insurance is no longer fit for purpose – whether that’s because certain business activities aren’t covered, or you simply have the wrong limits. In other words, by agreeing to work before you review your insurance, you may be breaching your contract as soon as you sign it.
We get it, it’s easy to miss. You’ve pitched, worked tirelessly, and finally got the go ahead from that client you’ve wanted to work with for so long. But it really does pay to make sure you comply with all contractual requirements before going any further. And here’s why.
A contract is your bulletproof vest…
As our friend and a Partner at BLM Law Steve Kuncewicz writes, contracts are “a key asset to your business”. You might set out with the best of intentions with your client, supplier or freelancer, but there’s always the possibility of a disagreement. And we’ve seen enough issues arise to say confidently that the contract is, more often than not, the source of the resolution when settling a dispute.
What’s more, without a written contract, you’re also usually removing a key element of cover: breach of contract. Why? Because insurance policies that extend to include breach of contract are typically explicit in only covering breaches when a written agreement is in place.
…but it needs reviewing or it’ll cost you
A contract doesn’t protect you by simply existing – it needs to accurately reflect both you and the party in question. If it doesn’t, and certain clauses are unclear, you run a significant risk. Instead, you need to review your policies beforehand so you can negotiate the terms of your contract accordingly.
Whilst contractual insurance requirements such as high limits on Professional Indemnity aren’t ideal, they’re much easier to implement prior to signing an agreement rather than after. We find that end clients are often flexible on insurance limits if this conversation happens in advance.
Alternatively, if a client insists that you have these limits, you could factor additional insurance costs into the fee you charge. Having to take out new insurance or increasing limits after an agreement is signed often incurs an unwanted, unexpected expense. And failing to take that into account could harm your profit margins.
Don’t forget, too, that insurance clauses often require you to keep the prescribed level of insurance for a period of time after the contract ends – sometimes up to six years. So, if you do get the incorrect cover, you still bear the cost of the mistake even after your client stops paying. Be sure to budget for this throughout the entire obligation period.
How we’ve helped others in this position
Our team engaged with an agency who were coming up to renewal. They had previously been required to have Cyber & Data insurance with a limit of £10,000,000 – an excessive requirement given their contract size, scope of work and exposure to data. However, it was a part of their client’s standard contract.
Given the rising costs in the Cyber & Data market due to the volume of claims, insurers are reluctant to offer these types of limits to SMEs. And when they do, it’s becoming increasingly expensive.
Although we managed to source an insurance quote which met these requirements, it added thousands to the agency’s annual spend. So, we prepared them for a conversation with their client about these contractual terms.
Both parties agreed to a more sensible limit. It’s now proportional to the risk, and the policy is much more affordable for the agency. Best of all, our client achieved this while maintaining their customer relationship.
Unsure where you stand with your contracts?
We understand that you want to streamline the procurement process. That’s why, at RiskBox, we offer to review our clients’ contracts against their insurance for free.
Our experts can provide valuable feedback on whether you comply with insurance clauses and what may need changing and quoting accordingly, as well as give supporting evidence to negotiate alterations with your client. However, it should be noted that we are not a solicitor and so can only comment on how the contract varies from your insurance programme.
What are you waiting for? Arrange your review today.
Photo by Romain Dancre on Unsplash
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