Economic downturns often cause professional services businesses to make changes to enable them to weather storms and come out stronger on the other side—from adding new services, adjusting their budgets and deadlines or changing their approaches to staffing. This can result in new or increased risks, especially errors & omissions exposures. Thankfully, independent agents are well-positioned to help their business clients identify and navigate these new exposures.

Here are five common changes businesses are making:

1) Expanding into professional services. Many businesses are entering into new areas, including providing advice, consulting services or training. These new revenue streams can help offset lost income from other areas but have insurance coverage implications that business owners may not be aware of. Often, certain services would not be covered under general liability policies.

2) Reducing customer spending on services. Inflation can lead to reduced demand for professional services since many consumers have less disposable income to spend on non-essential services, which leads to a decline in bookings and revenue. Additionally, customers may reduce or delay payments, or even terminate service contracts early. This is because businesses are under more financial pressure and may be more likely to breach contracts.

Often, this creates added pressure on ongoing projects or long-term service agreements and can lead to more contract disputes. Contract disputes are common during periods of economic downturn as customers are more likely to dispute a contract to save money. These disputes may require costly legal action to ultimately reach a resolution.

3) Diminishing ability to meet contractual deadlines or performance metrics. Staffing changes, finances or general business disruption have made it challenging for some service providers to meet deadlines. These disruptions may cause them to be unable to deliver on contractual performance metrics which were based upon outdated staffing models.

Nearly half of businesses experience allegations of non-performance in the usual economic market, according to The Hanover's research. Given this, these businesses may now find themselves facing more allegations of non-performance of their products or services.

4) Hiring more inexperienced staff. Many professional service providers are experiencing staffing challenges right now. As a result, they may feel pressure to hire less qualified employees to meet the demands. At the same time, there may be fewer tenured staff available to help train new hires.

The lack of capacity, coupled with higher turnover, leads to a greater potential for mistakes or errors resulting in claims and financial damages. Some firms are thoughtfully investing in talent development and pipelining to combat these challenges.

5) Increasing use of independent contractors. The economic downturn has put pressure on operating costs, forcing many businesses to be more efficient while accounting for fluctuating demand for their services. Service providers may choose to leverage independent contractors to help reduce payroll costs and nimbly adjust staffing levels depending on demand. However, a service provider may have less control, influence or oversight of independent contractors, which can adversely impact service and put the provider's reputation and profitability at risk.

The Role of Agents

With businesses undergoing a variety of changes, the good news is an overwhelming majority of professional service providers rely on independent agents for advice—a testament to the important role agents play in this complex environment. In addition to providing experienced counsel, independent agents also help their clients select carrier partners that can offer the following solutions to address their evolved risk:

• Robust standalone coverage. Some clients can get the insurance coverage they need through an endorsement, but an increasing number require higher limits and broadened coverage that are only available through a standalone professional liability policy. 
• Independent contractors as insureds. Any contractors or temporary employees working on behalf of a client should be explicitly named as insureds in policy terms and conditions to best protect the business.
• Strong risk management solutions. Carriers should offer risk management capabilities to insureds, regardless of the business size. This is particularly important for smaller businesses that often do not have dedicated risk management functions, making things like training resources or discounts on background checks even more valuable.

The Value of the Right Carrier Partner

During this economic downturn, agencies are also coping with unprecedented staffing challenges due to early retirements and a skilled talent gap. For agents, relying on resources offered by their carrier partners can help them recapture some of this valuable time.

For example, The Hanover offers its agents the ability to quote and issue standalone professional liability coverage in just minutes through TAP Sales, its online quoting and issuing platform, helping to make the process more efficient. At the same time, The Hanover's customer service center can help manage servicing for small business accounts, freeing up valuable time for agents to focus on business-driving efforts. 

With changes to their operations, businesses have some new risks to consider, but independent agents are well-positioned to help them address these new exposures.

To learn more about The Hanover's E&O coverage, please visit Agent Solutions.

Sarah Medina is president, professional liability, at The Hanover Insurance Group, Inc.

 All products are underwritten by The Hanover Insurance Company or one of its insurance company subsidiaries or affiliates (“The Hanover"). Coverage may not be available in all jurisdictions and is subject to the company underwriting guidelines and the issued policy. This material is provided for informational purposes only and does not provide any coverage. (For more information visit www.hanover.com.)