|Delaying "Run Off" PI Cover purchase|
|Written by Dave Hedgecock|
|Thursday, 02 April 2015 15:20|
I was asked last week - "I am an RICS surveyor and have virtually ceased to trade aside from just finishing a few bits and bods but insurers say I cannot put my PI into run off yet. Won’t this involve me more cost due to delaying the start of the 6 year run off?"
Good question and a not unfamiliar one. Let's firstly look at what run off insurance is? Run off Professional Indemnity is a normal PI policy but endorsed to say it will not provide cover for work undertaken or completed after the applied “run off” date (The date you apply to run the policy off).
In this case, the RICS prescribe the six years, but general six years is seen to be the norm as the statute of limitations runs for six years, however, in practice claims can be brought outside of this limit under tort. Many other institutions also prescribe six years for its members. If you have ceased to trade aside from tidying loose ends or doing none RICS activities then you can leave your policy un-endorsed for as long as you want and then when you are happy you have completed your loose ends put the policy into run off then. The un-endorsed policy will have already provided indemnity for the past work even though not in run off, that’s how PI works.
You could in practice keep the policy un-endorsed for a couple of years after you have ceased trading and then place it in run off going forward, maintaining it until six years after you did your last piece of work, say two years before the run off endorsement was applied. So long as the period of six years from cessation of professional work is maintained by PI you are in compliance.
What about the premium however? It is true, we expect premiums on annually renewed policies in run off to reduce, however, if you have not worked for twelve months but have not put your policy in run off, we would expect a premium reduction to be applied just as if you were in run off. In most cases premiums at the start of a “run off” policies first years rarely differ from the preceding year.
Delaying endorsing a policy until its next renewal can also have its advantages. There are virtually no insurers looking to take on PI policies that are already in run off, speaking to a specialist ahead of winding your business down may enable you to position yourself with an insurer who will offer you better run off options than the one your are currently with. Such options may include no minimum or low minimum premiums, polices in “run off” can often fail to see reductions in premiums due to insurers minimums. The option to buy multiple years of “run off” ranging for one to six years or even odd terms of cover like 40 months to bridge the gap between expiry and 6 years are also other options.
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