In fact, you may not even have made a mistake for a claim of negligence to be brought against you, however you’ll still need to defend any such claims to resolution, which can be a costly affair, both in time and financially. It is when things go awry and a claim is lodged that the real value of professional indemnity (PI) insurance and professional advice is truly appreciated.
PI cover is non-negotiable
Professional indemnity (PI) insurance provides the insured party with indemnity in respect of legal liability arising out of the practice of their profession. Indemnity cover will include the professional’s own legal costs, as well as any compensation to the claimaint and/or legal costs that are up to the limit of indemnity of the policy, providing all parties with peace of mind and financial protection in the event of a claim.
PI cover is a non-negotiable for any professional operating in an increasingly litigious society and business environment. A professional without PI protection would be the equivalent of playing Russian roulette, as the legal costs of defending any litigation alone could financially ruin the professional services firm let alone the award for any damages claim by the courts.
In the past year, and more so during the Covid-19 pandemic, there has been a massive shift in the insurance market affecting many classes of insurance. PI has not escaped these trends and changes.
Trends and changes
On average, the PI insurance renewal process starts three months in advance. Many clients only respond to the renewal requirements at the last minute, often resulting in their policies not being renewed and updated in time. This is a very common and concerning trend in the PI space, says Rizzo. With annual renewals that do not renew automatically, it is of utmost importance to renew your PI policies and to ensure that there is no lapse in your policy from one year to the next. If your PI cover lapses, you no longer have an active policy in force and you will need to take out a new policy.
This means a new renewal and retroactive date, and your retroactive cover for events that may have occurred in the past and that may be the subject of a claim in future, will be lost. This essentially means that no claim can be brought against the policy for past work that was not insured under your new policy, even if you have a new policy in force at the time of the notification.
Key elements considered at notification stage before a claim is attended to, include:
- Whether an active policy is in force at the time the claim is notified
- Was there an active policy in force when the services, resulting in the notification, were provided? This is determined by the retroactive date provided on the policy
- Whether premiums are up to date
- Determining whether the insured was in fact legally liable
- Was the notification made timeously in terms of the notification requirements of the policy.
Worldwide, insurance markets are hardening and PI cover is no exception. Insurers are actively reviewing their position and risk appetite which affects not only the price of PI cover, but the underwriting requirements, the capacity that insurers are willing to provide, extensions, exclusions, subjectivities, terms and conditions. We are officially in what the insurance market refers to as a ‘hard market’, and PI renewals have never been as complex as they are now. We have experienced several challenges in placing cover across all professions.
In some instances, insurers are not prepared to provide us with quotations for the full 100% capacity, for the limit required. This means that we must approach multiple insurers to find additional capacity to cover the full limits quoted. Where the maximum that one insurer provides is between 25%-60% capacity, we secure the balance of the cover on a coinsurance or split-line placement basis, with the lead insurer determining pricing and cover and the supporting insurers having to agree to both before they accept the placement.
While the PI market largely benefited from the lower premiums afforded during the soft market cycle (which had endured for well over a decade), the market is no longer as competitive as it was. Noticeable price increases and restrictive covers are the order of the day, irrespective of whether there have been claims or not, ranging from anywhere between 30%-1000%.
In addition to the above, the impact of Covid-19 is far reaching but not yet fully understood, nor quantified, and exclusions of pandemic and infectious diseases have been added to professional indemnity policies going forward. This is one market where ‘trusted and well-established’ is critical when it comes to choosing an insurer to place your PI cover with. The services of an expert broker versed in professional risks is vital in evaluating your exposure to risks in your profession. A broker with sector specific experience is invaluable in ensuring that your cover is adequate to cover your exposure to risk, complying with any professional body or legislated requirements, and that you are not exposed under any exclusions and conditions that may exist on your policy.