As you are probably aware, ACCA requires that members who are ceasing to practice or are about to retire maintain professional indemnity cover for a six year ‘run off ‘period thereafter.
This cover provides protection should any claims arise during that period from work done before the practice was wound up. ACCA is currently being contacted by an increasing number of affected members who are struggling to obtain suitable run off insurance.
Ordinarily, run off cover is arranged in one of two ways, either by setting up a ‘six-year block’ policy which is paid for in advance or by setting up an annual policy which is then renewed each year for six years. Traditionally run off insurance can only be arranged with the insurer who provided the professional indemnity (PI) cover whilst the practice was trading.
Very few insurers, if any, will now consider providing run offer cover for a risk which 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.
So, with few options available previously when placing run off, it is now even further fraught with difficulties. Such difficulties being experienced by members have been worsened now largely due to the prevailing hard market conditions for professional indemnity generally. Some insurers and Managing General Agents (MGAs) have withdrawn from the PI market for accountants completely and others are reducing their overall exposure to risk and so are no longer able to offer the six-year blocks of cover for run off.
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 mid-way through the six-year period when Insurers depart the scene. Whilst we are obviously happy to assist, 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 professional indemnity insurance broker such as Lockton to assist you with the vagaries 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 professional indemnity policy on an ongoing basis.
Often after retirement, many accountants continue to practise as a consultant to the firm and likewise the majority of PI policies will continue to provide cover for work carried out by such consultants. Nevertheless, in each scenario, we strongly suggest that the policy wording be reviewed to make sure that cover is correctly in place and again Lockton can help with this.