An Explanation Of Run-Off Insurance – And Its Implications For You And Your Business
by Liz Seyi Digital marketing managerWhile the importance of
professional indemnity insurance for a wide range of business owners and those
providing a service is well understood, you may not be so familiar with the
concept of run-off cover. Indeed, there is sometimes a temptation to
incorrectly regard run-off insurance as representing something significantly
different to ordinary professional indemnity cover.
“Claims made” vs. “claims occurring” protection
To understand how run-off insurance works, it is important to
appreciate the “claims made” nature of the protection it provides.
The professional indemnity cover that your business may already
have in place will be underwritten on what is called a “claims made” basis,
rather than a “claims occurring” one. This means that your policy will respond
to a claim – or an event possibly leading to a claim – that the insurer is
first notified of while the policy is actually in force.
In other words, the policy will respond to a claim made during
an insured period, even though the event giving rise to the claim might have
actually occurred before the policy started, or when the policyholder was still
being insured by another insurer.
This is different to how “claims occurring” policies – such as
employers’ liability, public liability, or car insurance – work.
These particular insurance policies respond to losses that
occurred while the policy was in force. So, if the policyholder has switched to
another insurer since the event giving rise to the claim, it will be the
company that provided the insurance at the time of the event that will deal
with the claim.
So, how does this apply to professional indemnity
cover?
In the case of your business’s professional indemnity insurance,
it is crucial to ensure you have a policy in force to protect you in the event
of a claim being made against you or your former practice for work carried out
in the past.
This explains the need for a run-off insurance policy to be
purchased and maintained while the professional liability period to your
clients is still “running off”.
Run-off insurance, then, is a form of professional indemnity
cover that takes effect when you or your employees cease to trade, with any
claims made under such a policy relating to work undertaken before the run-off
cover commenced.
What should your next steps be if you might need
run-off insurance?
Those retiring from their business often purchase run-off
insurance; its very nature makes it especially suitable for smaller firms and
sole traders.
It is important to remember that with even speculative or
spurious claims still needing to be defended, the right run-off policy can give
you invaluable peace of mind. It will cover the costs of defending claims, and
reimburse any losses that occur in the event of a claim being upheld against
you as the insured party.
Anyone who required the protection of a professional indemnity
policy while providing services and advice therefore stands to benefit from
having run-off cover in place.
If you conclude that you do indeed require run-off insurance for
your business, your next step should be to advise your current insurer or
broker of this. If it is a while until your current policy’s renewal date, you
will need to tell your present insurer or broker that you have stopped trading.
The insurer or broker will attach an endorsement to your policy,
making clear that they will not provide cover for any service or work provided
after that date – the “run-off” endorsement date. When the renewal date
arrives, the insurer will present you with run-off renewal terms, and may
request that you complete a proposal form setting out the work you have carried
out between the previous renewal date and the date you ceased trading.
It will then be up to you whether to commit to the run-off
policy, or instead make alternative arrangements. A run-off insurance policy
typically continues for up to six years, although your business’s particular
circumstances and requirements may dictate a shorter or longer period of cover.
Note, too, that after the first full year of run-off, your premiums on such a
policy should begin to show signs of decreasing from what you paid for
indemnity cover while trading.
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Created on Apr 27th 2021 06:52. Viewed 153 times.