The insolvency sector is seeing an increase in the complexity of its appointments, which is making the market more challenging for brokers and clients alike, an expert has said.
With insolvency numbers rising over the course of 2017, Luke Goss, national manager of insolvency and turnaround at Gallagher, said that it is not just volume that is increasing but complexity too.
“What we are finding is there has been a bit of an uptick in companies going into administration and the practitioners being more open to trading the business on and trying to develop a solution,” Goss told Insurance Business. “I think there had been a bit of sentiment in the past that it was beyond saving so it is easier to go into liquidation and sell everything up.”
In Gallagher’s latest Quarterly Market Report, Goss noted that the trend of insolvency practitioners attempting to trade on a business while trying to sell or restructure it began in the latter part of 2017, representing a marked change from previous months.
He added that businesses are also looking to engage insolvency practitioners in advisory roles at the onset of troubles, to help guide the firms out of choppy waters rather than ceding control in an administrative or liquidation capacity. This means financial lines insurers need to be aware of changes in business direction.
“You might have firms that would have traditionally had a lot more work in the formal insolvency space, so they are taking administrations, receiverships and liquidations, but their future prospects of turnover in that kind of realm is decreasing; however, they are expecting more of an uptick in the corporate advisory, turnaround or restructure,” Goss said.
He noted that this has implications from a PI perspective as it can remove the risks attached for an insolvency firm as the nature of their work changes.
In addition, the introduction of safe harbor legislation, which gives directors more opportunity to turn a company around, has also seen complexity rise in the insolvency sector. This has impacted the potential risks for practitioners.
“Our main focus is making sure the profession we support has all the right tools and policies available to it to make sure it has that protection,” Goss continued. “One of those is around the outside directorship liability risks that insolvency practitioners would have, advising the board in an advisor capacity even under safe harbor protection.
“They are not in there and in control of the business as they would be if they were an administrator or receiver, but nevertheless there is still an exposure there where there is something that may morph between being a PI risk to being an outside director risk, so we have come with an insurance solution that fits that.”
