Professional indemnity cover for the period after a practitioner ceases to practise is becoming harder to find
As you are probably aware, ACCA requires that members who cease to practise or are about to retire maintain professional indemnity (PI) cover for a six year 'run-off' period. This cover provides protection should any claims arise from work done before the practice was wound up.
ACCA is hearing from an increasing number of members who are struggling to obtain suitable run-off insurance.
Ordinarily, run-off cover is arranged in one of two ways:
Traditionally, run-off insurance can only be arranged with the insurer who provided the PI cover while the practice was trading. Very few insurers, if any, will now consider providing run-offer cover for a risk that had been held insured with another underwriter prior to retirement/cessation. Moreover, any insurer will also require to have held the risk for at least two years before they will even consider providing a six-year block of cover.
With few options available previously, the process is now even further fraught with difficulties, due largely to the prevailing hard market conditions for PI generally. Some insurers and managing general agents (MGAs) have withdrawn from the PI market for accountants completely, while others are reducing their overall exposure to risk and so are no longer able to offer the six-year run-off blocks of cover.
Similarly, seeking to curtail their exposure, insurers may only provide minimum limits of indemnity or restrict cover further by providing a single total limit on aggregated basis over the period of cover.
All of this means that retiring accountants have a real problem effecting appropriate run-off cover.
By way of a troubling example, we were contacted recently by a retired accountant, who had purchased an annually renewable run-off policy with an MGA on which a claim had been made. Unfortunately, the accountant had been late in returning the renewal forms and the MGA simply declined to renew the policy.
In another instance, also involving an MGA, annual cover could not be renewed because the MGA simply withdrew from the professional indemnity market completely.
We have received several such requests to place run-off cover midway through the six-year period when insurers depart the scene. While we are obviously happy to help, you must be aware that there are very few insurers available to assist at the present time.
As such, when you are contemplating retirement or cessation of practice, you must also consider the importance of addressing the continuing need for PI cover and be sure that it is placed properly.
We therefore recommend that in the year or so you before you intend to close down or sell your practice, you must ensure that your PI cover is placed with a stable, A-rated insurer and that you engage the services of a specialist PI insurance broker such as Lockton to assist you with the vagrancies of the PI market.
Should you be considering the sale of your practice, you also must give due consideration to run-off cover. Again, Lockton can readily assist you (or the potential buyer) with this to ensure that past liabilities can be protected appropriately.
Finally, and by way of immediate comfort to those accountants who are considering retiring from ongoing practices, there is better news: their past liability should continue to be covered by the firm’s PI policy on an ongoing basis. Often after retirement, many accountants continue to practise as consultants to the firm and the majority of PI policies will continue to provide cover for such work. Nevertheless, in each scenario, we strongly suggest that the policy wording be reviewed to make sure that cover is correctly in place; again, Lockton can help with this.
Finally, if you have any questions, please contact your Lockton account manager for further advice or email ACCAaccountants@uk.lockton.com.
Lockton is ACCA’s recommended broker for professional indemnity insurance.