Written by William Paull
Co-Founder & Account Director
On this page
Key points
- Before you switch, ask what date the new policy goes back to.
- Sitting on a problem job instead of telling your insurer can cost you the claim.
- Before you cancel the policy on the day you stop trading, arrange run-off.
Why doesn't the policy you had when you did the work pay?
Because it is claims-made. A client's claim can come next month or five years from now, and against you personally. Unless you told your insurer about the problem while the old policy was running, what matters is whether today's policy answers for that job.
Three moments catch people out: switching insurers, keeping quiet about a problem job, and stopping work.
Public liability runs on a different clock, as public liability and professional indemnity: do you need both? explains.
What happens to your retroactive date when you switch insurers?
It can reset, and that is where a cheaper quote bites.
The retroactive date is the earliest date your current policy will go back to. If it matches your first day in practice, your whole career can be covered. If the new insurer's date resets to the day the policy started, every earlier job falls outside the new policy, even though you paid premiums for it at the time.
A quote that looks 20% cheaper is not a saving if the date resets to today. Ask what date the policy goes back to, and whether it matches what you already had. The date is set on the new policy's schedule, the pages that set out your own cover, so you can read it before you accept.
What we check: your retroactive date against your whole practice history, including the policies before the one you are replacing. A gap two insurers back can still be sitting there unnoticed.
When a client of ours moves insurer, we always ask the new insurer to keep the existing retroactive date. The answer is part of the quote, so you know before you move whether your past work comes with you.
What if you already know about a problem job?
Tell your insurer in writing as soon as you know, even if nobody has formally complained yet. Wait until renewal and you may have lost the right to claim on it at all. In our experience, sitting on a problem is by far the biggest and most costly mistake small business owners make with this cover.
Written notice of facts that might become a claim, given before the policy expires, can lock in cover for a claim that arrives later. A complaint, an unhappy email or a mistake you spotted yourself can each be facts that might give rise to a claim.
Switching makes it worse. A new insurer can decline a claim from a fact, incident or complaint you knew about before its policy started. It calls that a known circumstance, and it can decline even if the work falls inside your retroactive date. A continuous cover clause can still pick up a problem you knew about but never reported. Some of those clauses only help if you have stayed with the same insurer. Others can recognise earlier cover with another insurer, subject to conditions. We check this before recommending a move.
Do you need run-off cover when you retire, sell or close?
Yes, if you want your past work protected. Run-off is cover for a fixed term after the policy ends, so a claim about work you have already done still has a policy to answer it. You might retire, sell the business, wind up a company or move into a different line of work. Your exposure to claims about past work does not end when you cancel the policy on your last day. Without run-off, a claim about a job from three years ago has nothing to respond to it.
Run-off is generally arranged for 12 months, 3 years or 7 years. As a general indication:
| Run-off term | What it costs |
|---|---|
| 12 months | About the same as your last year's renewal premium |
| 7 years | Roughly 2.5 times your last year's renewal premium |
After a sale or merger, how long a policy keeps covering your past work also differs. On some of the policies we place, that cover runs only to the end of the policy period. On others, up to 84 months can be arranged, and on one of them it has to be requested before the policy expires.
If you hold a public practice certificate from CPA Australia, CA ANZ or the Institute of Public Accountants, your body requires your past work to stay insured for at least seven years after you stop practising or retire, or your practice merges. CPA Australia accepts a future policy that covers it, and the Institute of Public Accountants requires run-off where the policy does not include it. Professional indemnity for accountants sets out the rule.
We raise run-off when you take on a partner, change your business structure or start talking about winding down, while the policy is still in force.
Who pays for run-off on a sale depends on what was sold. Sell the client book but keep the company, and in our experience the seller keeps professional indemnity running for about seven years after the sale, because the old advice is still theirs. Sell the company itself, and its history goes to the buyer with it. A company that has been deregistered with no assets left has nothing for a claimant to reach, so run-off there is a different conversation to have with us.
How far back does your cover reach?
Tell us when you started practising, and we will work out how far back your cover reaches before anything is cancelled.
Frequently asked questions
Is a cheaper professional indemnity quote worth switching for?
Not if it reaches back less far than your current policy. Consolidated Insurance Brokers checks the retroactive date before you switch, because a new policy can reset it to the day it starts. If it does, every earlier job falls outside the new policy.
How long does professional indemnity run-off cover last, and what does it cost?
Usually 12 months, 3 years or 7 years. As a general indication, plan on 12 months costing about the same as your last renewal premium, and 7 years about two and a half times that.
When should I tell my insurer about an unhappy client?
Straight away, in writing. Waiting until renewal can lose you the right to claim. Give that notice while the policy is still running and that policy can still answer a claim that arrives later.
Does public liability need run-off cover when I close my business?
Usually not. Public liability is occurrence-based on most wordings: it covers injury or damage that happens while the policy is in force, even if the claim comes years later. Injury or damage that happens after you cancel, from work or products you supplied before, falls outside it. Professional indemnity is claims-made, which is why it is the cover that needs run-off when you stop.