WHAT HAPPENS IF I CANCEL MY PROFESSIONAL INDEMNITY COVER? CAN I DO WITHOUT IT?
Matt Kuc and Austbrokers Countrywide recently published the following article which provides some good information on the importance of continuing your PI Insurance
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 4 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