Business financial ruin in the event of a mistake that results in a claim . PI insurance is designed not only for traditional professionals who provide advice or a service to their customers , but anyone who holds themselves out to be an expert in a particular field and whose expertise and advice the public might rely on .
Even if a professional has acted in full accordance with the law and professional standards , if a claim is lodged against them , they will need to defend their position and actions in a legal process . The defence costs can be massive and drawn out over a number of years . During this time , a professional ( entity or sole proprietor ) without PI protection could be liable for the legal costs , facing potential financial and reputational ruin . If your PI cover lapses as renewal was not done on time , it will cause a break in coverage , which can be equally as damaging as not having any cover at all .
THE IMPORTANCE OF MAINTAINING OR RENEWING YOUR PROFESSIONAL INDEMNITY POLICY If you are a professional who has acquired a professional indemnity policy , it is important to note that the policy is issued on a ‘ claims made ’ basis . Simply put , this means that the policy that is in force at the time that a claim is made against a professional will respond to the claim , and not the policy that was in force at the time the work was done . Therefore , should the policy be lapsed or not renewed there will be no cover in force to respond to any claims , making it crucial to renew your PI policy annually as the policy does not auto-renew .
Another key risk of not renewing your PI policy on time means that you lose your retroactive date that you or your firm enjoyed on the policy . A retroactive date is normally fixed as being the date on which the cover was first taken and would remain unaltered for the purposes of subsequent renewals . This date is important because there will be no coverage for claims arising out of work performed prior to this date . You do have an option to take additional retroactive cover at the time of the policy ’ s inception , subject to certain conditions and premium loadings .
If you are in a situation where your PI policy has lapsed , you may be able to purchase a new business policy and you may be able to purchase retroactive cover within certain limits . It is important to note that the policy ’ s inception date will now be the current date , offering no cover for work done or projects executed prior to the new retroactive date .
Most renewal reminders are sent three months prior to the actual renewal , allowing the client and broker enough time to renegotiate terms with an insurer or to find capacity elsewhere if needed . Professional indemnity policies usually take time to renew , so leaving renewals to the last minute could result in the policy not being renewed in time , causing a gap in cover or the policy lapsing in totality .
Risk volatility is omnipresent , especially in the daily dealings of professionals . A broker with sector specific experience is invaluable in providing the insights that you need to be better informed about the risks that you are faced with in your professional career . Armed with a clear view , you will be able to make better decisions to remain risk resilient and ahead of the curve . RACA
" PI cover is a non-negotiable for any professional operating in an increasingly litigious society and business environment ."
www . refrigerationandaircon . co . za RACA Journal I July 2022 43