What is retroactive insurance cover?
You are effectively allowed by some insurers to backdate your professional indemnity (PI) cover so that you and your business is protected against possible claims as a result of your past work.
As you would expect with insurance, there are some caveats when in come to this particular feature.
Why to have a retroactive date in insurance?
If the work you have done in the past might give rise to a claim in the future, you need a retroactive date in your policy.
When it comes professional services, it is generally quite hard to pinpoint exactly when an error occurred that later caused an issue leading to a claim.
This is why professional indemnity insurance has been designed on a claims made basis and a retroactive date is an important feature.
When to have a retroactive date in insurance?
The need for a retroactive date in professional indemnity insurance comes from a number of reasons:
- You forgot to arrange PI cover: Often when trying to land a work contract, the need for PI insurance isn't a priority. By the time you get around to arranging your contractors insurance, you have already started your work. Luckily you can still insure the work you have done already by ensuring your PI policy has the right retroactive date.
- Switching insurers: When moving from one insurer to another, it is important to insert a retroactive date in the new policy. If you don't, you will not be insured for any past work that took place before the start date of your new PI policy.
Do I need retroactive cover?
If you're a brand new business about to start trading, you don't need retroactive cover (insurance for past work) because you haven't delivered any services yet.
In this situation you will purchase your very first professional indemnity insurance. Let's use 1 Jan 1900 as the start date of your business therefore the start date of your policy.
A year later your professional indemnity cover comes up for a renewal. At this point you might consider checking out the market to see whether you can find a better deal.
Once you start searching for alternative quotes, almost every provider of professional indemnity insurance will ask you whether you wish to insert a retroactive date. It is important that you provide that information. In our example your retroactive date is 1 Jan 1900.
Let's say you have found a better price and decided to move go with another insurer.
By doing so you have released your previous insurers from any obligations to pay claims arising out of your past work. This is why your new insurers must take over from the retroactive date being 1 Jan 1900.
Your new PI cover should therefore state two dates:
- Start date: 1 Jan 1901 - the date you entered into a contract with your insurers
- Retroactive date: 1 Jan 1900 - the date from which your insurers agreed to insure your work
If your new insurers don't agree to cover your business from the retroactive date, you are effectively uninsured for any claims as a result of work delivered in the first year of trading.
Not all retroactive covers are equal
Some insurers won't let you set a retroactive date at all, some will but only if you've held uninterrupted PI insurance up to now and some, like Suited, will let you pick any date in the past whether or not you've been previously insured.
Some professional indemnity providers do not like to take on past liability, in other words they won't let you pick a retroactive date. For a business that's been operating for some time, that's obviously no good to you.
Some insurers will make a retroactive cover conditional asking you to confirm that you've been continuously insured since your retroactive date. That's ok if you have but if, for one reason or another, there is a gap in your PI insurance history, this is also not a good option for you.
A handful of PI providers won't hold you to any condition at all and let you pick a date in the past whether or not you have been insured. They might charge a little extra for that. This is a very good option for anyone who, as mentioned, can't evidence a continuous PI cover history or have never arranged PI cover before despite running a business.
What to remember about a retroactive date
Inserting a retroactive date in your professional indemnity insurance alone won't guarantee that claim arising out of your past work will be covered. You must also remember the following:
Make sure your new PI insurance covers all business activities. Future and past. Especially the past business activities that might give rise to a claim in the future.
The retroactive date must predate any past work that may give rise to a claim in the future.
