The Custodian Insurance Industry Blog

August 8, 2017

12 years professional indemnity

You may have been in a position where you are offered a new contract but part of the terms is that the contract is insured for 12 years.

What this means is that your client wants to fully de-risk themselves and you, as the architect, need to ensure you have PI cover for the next 12 years.

Is this a good idea?
Well, only you can judge if the commercial gain is worth the cost of maintaining the cover for that long.  What we can do is share some of the things we have suggested our architect clients consider when faced with this.

  1. Limit. If the contract requires a high limit of say 5m or 10m then this means that this limit has to be maintained for that contract for the next 12 years. If the rest of your practice only needs a 1m limit then you have a significant ongoing cost for the higher limit. Also the pricing for a 5m or 10m limit could increase over such a timeframe.
  2. Retirement or ceasing to practice. If you stop practicing for some reason, you will still be contacted to purchase professional indemnity until the 12 year condition is exhausted. If you did not and there was a claim then you could be personally liable and you would be in breach of contract which would likely result in another action against you. Not worth it.
  3. Ongoing practice. If you continue trading for the next 12 years and you continue buying pi cover for the next 12 years then there is no issue. In this instance agreeing to the 12 years has not impacted on your insurance cost. Although we would say the future is not always predictable.
  4. Get the term reduced. Sometimes it may be possible to negotiate the period down to 6 years or similar. Depending on the client firm this may or may not be an option but worth exploring.
  5. Build the cost into the commercials. Ultimately if you have a rough idea on the cost of insurance, the benefit of the contract, an idea on how many more years you intend to trade for then you can make an informed decision.

Knowledge is power and we’d be happy to help provide costings for you.

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