If you sell your car you can stop insuring it; motor vehicle insurance covers risks on an “occurrence” basis and once the car is gone so is the risk.
Professional Indemnity is different.
Professional Indemnity works on a “claims made” basis and you must have insurance in place at the time a claim is made against you. This means that even if your business has wound down or you have ceased providing service entirely, you still carry ongoing exposure for past work.
Work for a client is completed on 04 February. Your Professional Indemnity Insurance is due for renewal on 20 April but you choose to lapse it.
That client realises on 1 May they were unhappy with the service and alleges problems arising from it have caused them losses so they make a demand against you for compensation.
In this scenario there would be no Professional Indemnity Insurance protection even though insurance was in place when the work was done.
Key considerations towards maintaining Professional Indemnity Insurance
- Ongoing protection for past claims – if you lapse or cancel all protection for past work ceases
- Professional Licensing or Accreditation – Many professions have their license conditional upon professional indemnity insurance
- Contractual Liabilities – there may be a requirement to maintain professional indemnity for several year after the work
- Reduced future cover – if you lapse or cancel and seek to re-purchase in the future, some covers like Retroactive Cover for past work and Continuous Cover may not be available
Get professional advice. There may be other avenues to consider to assist you:
- Reviewing your premium on renewal due to reduced actual income and reduced projected income
- If your business has reduced to zero, discuss “Run Off” cover at renewal which reduces your insurance to covering past work only
- Reviewing your sum insured (buy less cover) where not restricted by professional license or contracts
- Review your excess (retain more risk) which reduces your premium