Run off insurance
When a business ceases to trade run off cover will be required. The reason for this is that Professional Indemnity Insurance is a claims made policy, so it is the policy in force at the time a claim is made that will deal with the claim.
If a business ceases to trade and doesn’t buy run off insurance then there would be no policy in force as cover is provided on a claims made basis. It is a requirement of the RICS regulations that run off cover is maintained and even in the absence of this it would be unwise not to arrange cover. Run off cover is required by RICS for a minimum period of 6 years, although contractually the requirement may be longer.
Run off cover is sometimes available as a single policy covering the whole run off period however this is only available in limited circumstances. It is more usual for run off cover to be arranged on an annual basis, with the first year’s premium being similar to the last year of trading and generally speaking this then reduces by around 10% each year, depending on claims experience, market conditions etc. Run off cover will usually only be offered by the insurer in place at the time the business closes as there is little appetite amongst insurers to take on a run off risk for a new customer.
The cost of run off insurance can be high, especially when you add up each annual premium over the 6 year run off period. There are ways to legitimately reduce the cost of run off insurance by preparing for it some years in advance and we would recommend that you talk to us as soon as possible if you are in this position or approaching it. There are also other ways of dealing with run off cover if you are selling your business either to existing employees or another company and again we would recommend that you discuss this with us if you are in this position.
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