Thinking of reducing your cover?
Published: Tuesday, 13 April 2021
Why reducing your limit of indemnity might be a false economy
With rising PII premiums, it’s not surprising that firms are looking for costs savings.
Here’s why reducing your limit of indemnity may not be the best decision for your firm
Many firms are experiencing increasing premiums with some being very significant. Primary layer policy premiums are on the rise, but excess layers are often rising at even higher rates. In this difficult environment, one of the temptations is to consider reducing the firm’s limit of indemnity to save on premium. We would urge caution if you are thinking of doing this.
Professional Indemnity policies provide cover on a ‘claims made’ basis –which means you are obliged to notify both claims, and circumstances that might lead to a claim, when they first arise. Not all claims progress swiftly – many involve technical and complex areas of law and legal proceedings and we often see claims running on for many years. To provide peace of mind, the limit of indemnity that you select needs to be of a level that is sufficient to cover a claim that might not be settled until 10 years from now.
Keep in mind that the limit of indemnity covers both the claim and claimant costs and unfortunately, costs can be considerable - particularly in an instance where the matter proceeds to a full trial with experts and witnesses. When you also consider the interest on damages that could accrue over the timespan and things like the cost of inflation, a limit suitable right now, may not be adequate in 10 years’ time.
It seems a bit extreme to think that a claim may drag on for such a long period of time. However, we have recently handled 3 claims for clients which have only just settled, after first being notified in 2010 and 2011. One of the claims settled for several million and involved claimant costs alone of circa £800k.
It is also important to bear in mind that the limit of indemnity applying when you notify a claim is stated in your current cover, regardless of when the work was carried out. If you finalised work for a big project or client some years ago, reduce your limit of indemnity, then later receive a claim, you may find yourself without adequate cover for larger historical appointments.
A decision to reduce the limit of indemnity should be taken with care and caution. Your dedicated team at Ntegrity is always on hand to offer guidance in this area and so if you wish to discuss any concerns that you have, please do not hesitate to contact us and we will be happy to offer support and assistance.
Tara Price, Claims Director