In today’s fast-paced world, we all want to find efficiencies that will save us valuable time and money. This is especially the case when it comes to those ancillary tasks which can otherwise slip further and further down your list of priorities – including your professional indemnity insurance (PII) renewal.
Over the last 10 years, insurers have also looked to streamline their practices from an underwriting perspective, while seeking ways to build loyalty among their policyholders. This has led to a boom in automatic renewal processes and continuous policy coverage.
Yet, while automatic PII renewals can be tempting, it is vital to understand the impact they can have for your cover – and for your clients – if you don’t fully understand the process. Below, we’ve highlighted the potential pros and cons of an automatic renewal, as well as some additional aspects to consider:
Pros of automatic policy renewals and continuous coverage
Hassle-free. Automatic renewal processes remove the need for potentially lengthy proposal forms to be completed each year, saving you valuable time that you can dedicate elsewhere.
Continuity of cover. Your cover will continue, ensuring you are not left with any gaps should you miss your renewal date for any reason. This is particularly important where coverage exists on a claims-made basis, such as PII, where you must have a policy in force at the time the claim comes in, rather than having held a policy when the work in question was carried out, in order to ensure coverage.
Rating. While not always the case, continuous policies and automatic renewal processes often see insurers offering allowances for fluctuations in your fee income. For example, many insurers will simply state that, provided your fee income has not breached a defined amount, there will be no requirement to advise them and no change to premium. This can make it easier to budget for the costs of your insurance.
Cons of automatic policy renewals and continuous coverage
Duty of disclosure. Your obligations under The Insurance Act 2015 remain, irrespective of whether your insurer is offering automatic renewal or continuous cover. Simply agreeing for cover to continue each year without checking the information declared is still accurate will be no excuse for details being incorrect. If your business changes, or you are aware of information that is material to your risk, you are legally obliged to notify your insurers. Failure to do so could lead to invalid cover or claims being kicked out. This can be devastating to you and your business.
Regulatory requirements. Changes to your declared fee income could mean that your cover levels need to be reviewed and increased to remain compliant with your regulator's PII requirements. Allowing cover to renew automatically each year could mean that your limit of indemnity is no longer sufficient.
The danger of automatic renewals – a case study
In one example, an insured with a continuous policy in place initially disclosed that they purely carried out tax returns, with their coverage and premiums determined on that basis.
Over the years, this policy just rolled over – but the insured neglected to inform their representative that they were also undertaking payroll and bookkeeping work, and that their fee income had increased as a result.
Eventually, the insured lodged a claim for a mistake made on a client’s payroll returns. However, the insurers rejected the claim, as the work had not been disclosed to them.
Regular updates are essential
While automatic renewals and continuous cover policies do offer plenty of benefits, and certainly have an important place in the market, not paying due care and attention to your renewal can cause serious issues.
As the example above shows, insurers are within their rights to repudiate claims and void cover if it is clear that the policyholder has not disclosed material facts. To avoid this situation, ensure that you liaise with your broker regularly and keep them updated as your business evolves.
Always be sure to review the details at renewal and be clear of the basis upon which your insurers are covering you.
For further information, please contact:
Catherine Davis, ACCA Relationship Manager
E: catherine.davis@lockton.com (opens a new window)
David Isherwood, Vice President, Global Professional & Financial Risks
