Delay in finalising arrangements for your Professional Indemnity Insurance, including financing your premium, could put your firm in the Extended Indemnity Period. Beware of the risks.
Firms need to ensure that they do not leave renewal arrangements too late. It is not just a matter of submitting your insurance proposal and accepting a quote. Arrangements for financing the premium are also key.
Most insurers will not confirm cover and allow policy documentation to be issued unless and until they have either cleared funds in their account (or we can confirm that those funds are in our account as broker), or confirmation that a firm has a binding and irrevocable offer of finance from a pre-approved facility for the full amount of the premium.
It is therefore imperative you ensure that arrangements for financing your premium are well in hand. Applications for finance can take time to process. If you leave this to the last minute and cannot provide insurers with the confirmation they require by 30 September, then you will find your firm in the “Extended Indemnity Period” (EIP) when the clock ticks over to 1 October.
This is a scenario that firms should make every possible effort to avoid. The 30 day EIP was introduced in 2013 when the Assigned Risks Pool (ARP) was closed. It was intended to be an option of last resort for the type of firm that in earlier years would have fallen into the ARP.
We are concerned that there is a common misconception that it is perfectly acceptable to use the EIP as “extra time” to finalise arrangements. This is not good practice at all, and it can have serious implications for your firm. We want to be sure you are aware of the risks, which are as follows:
• Under the SRA Indemnity Insurance Rules 2013 a firm must notify its insurer and, more importantly, the SRA “as soon as reasonably practicable and in no event later than five (5) business days” of entering the EIP. You really do not want to attract the attention of your regulator in this way. There is an additional requirement to communicate with your insurer and the SRA again when cover is finally secured.
• Even if your cover is confirmed without difficulty a few days after 1 October, this does not alter the fact that your firm has been in the EIP if there has been a gap in cover. This would need to be disclosed in response to the appropriate question on any future proposal form. It would not be a helpful start.
• The firm is at risk of insurers wanting to withdraw or amend terms in the event that a claim is made during the EIP.If you have not yet started to make arrangements for financing your premium, we urge you to address this issue without further delay.