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Run off PI

Single Premium Multiple Year Professional Indemnity Insurance

When any professional practice comes to an end, it is essential that it continues to benefit from professional indemnity cover for claims which may be made after the practice has ceased trading, in respect of work carried out previously.

Run-off cover is actually a standard professional indemnity insurance policy, the only difference of any note being that as the insured is no longer practicing. The policy will not provide cover for work undertaken after the run off endorsement date and the policy will only provide indemnity for work undertaken before that date.

The policy in its "Run Off" state is renewable each year going forward and should be maintained for as long as you believe you have a potential for needing to claim, or for as long as you are contractually liable six or maybe 12 years.  The normal is 6 years, this being the period clients can sue for negligent acts following the work being finished - the time limit for a claim under breach of contract.

In reality claims can be made outside of these limits under tort or if the contact is settled as a deed.

What do I do if I end my practice half way through a policy year?

If you advise your insurer they will simply endorse your policy to say that no work done after the date on the endorsement will be covered under the policy. There is normally no return of the annual premium nor is their normally any additional premium or fee to pay.

What happens on the renewal of my policy which I put into "Run Off” ?

Your insurer should issue you terms for another year with the policy again endorsed with the run off date.  The premium for this first full year of "run off" will usually differ little from the previous year, although it may reduce slightly if your fees in recent years have been lower than average or you entered run off early in the previous year.

What sort of premium can I expect to pay in run off?

A rule of thumb is that the cost of the first year of run-off may be 100% of the premium applicable to the last year of practice, the second year 75%, the third 50% and the fourth, fifth and sixth years 25% each, totaling 300% for the six years. The likelihood that claims made under run-off cover will decrease with time is also taken into account.  We should stress that this is what we might typically expect but there is no guarantee premiums will follow this pattern. 

Can my premiums increase in run off?

In recent years Professional Indemnity Insurance premiums have been reducing, however, a change in the economic climate can bring about a hardening of rates and this can result in the expected reduction year on year not materialising.

Some insurers have minimum premiums for policies in run-off, so taking out a policy with an appropriate insurer prior to a requirement for run-off is sensible.

Claims, or an insurer’s attitude to the specific risk or the relevant marketplace/profession, can increase costs, but it is only at the point of run-off renewal that the precise cost of cover will be known - and this can be a problem, as most insurers will only consider providing run-off if they were the insurers beforehand.

Can I change insurers I run off?

Yes but the market is very limited most insurers do not actively look for this type of business and only want risks they held when an active practice.

Should I be doing anything before I decide to close my practice?.

You should speak to a firm of PI specialists and consider positioning yourselves with an insurer who is better placed to suit your run off needs.

Reasons for change could be:

  • Your insurer may have minimum premiums not much below what you are paying now and they may impose these even in run off.
  • If you want to buy a multiple year PI (see single premium run off below) policy some insurers only provide it to their existing policyholders.

Reasons not to change

  • A number of insurers and some Professional Indemnity Insurance schemes provide free run off

What is Single premium "run-off" Professional Indemnity Insurance

Some insures offer a facility for accountants, architects, surveyors and a number of other professionals to purchase their run-off cover for a period of 72 months (six years) with a one-off single premium.  Cover can be for a shorter period and can be for a specific time say 4 years 3 months.

This is an excellent way to avoid the uncertainty of unknown premiums every year and allows the finalisation of cover in advance at a fixed, one-off price.   This can also be a useful for settling all your PI commitments in the final trading year.

Accepting a multiple year policy can carry a greater risk of lost premium however, as it is reliant on the insurer being around for that period.  Whilst we have no cause to doubt the viability of the insurers we are using there are no guarantees that they will enjoy the same financial position in future years.

How do I find out more?

We have published two newsletters on run off professional indemnity. These cover run off solutions where businesses have ceased to trade completely or they have merged with others. We also have a dedicated website to run off - http://www.runoffpi.com.

You can telephone to speak to one of our technical team or use our interactive chat feature on our home page.

If you would rather us contact you nearer to your renewal date please register using the "Your Renewal Date" link under the Resources Menu.

 

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