Understanding how claims-made policies work is essential for anyone holding Professional Indemnity Insurance. This guide explains the mechanism and its practical implications.
The Claims-Made Principle
Professional Indemnity Insurance operates on a claims-made basis. This is the single most important concept to understand about your PI cover.
Under a claims-made policy, it is the policy in force at the time the claim is first made against you that responds — regardless of when the alleged negligent act or omission actually occurred.
A Practical Example
Imagine you provided professional advice in 2020. In 2024, your client discovers that the advice was negligent and makes a claim against you. It is your 2024 PI policy that must respond to this claim — not your 2020 policy.
This means:
- You must maintain continuous PI cover without gaps
- Your current policy must cover work done in previous years
- If you let your cover lapse, you may have no protection against claims arising from historic work
Retroactive Dates
Most PI policies include a retroactive date. The policy will only respond to claims arising from work done after this date. If your retroactive date is set to the inception date of your current policy, you have no cover for any historic work.
The ideal position is an unlimited retroactive date (sometimes called 'inception' or 'full retroactive cover'), which means the policy covers claims arising from work done at any time in the past.
Notification of Circumstances
If you become aware of circumstances that might give rise to a claim, you should notify your insurer immediately. Most PI policies allow you to notify circumstances under your current policy, which then 'fixes' the claim to that policy year — even if the actual claim is not made until years later.
This is a valuable mechanism, but it requires careful and timely notification.
Continuous Cover
The claims-made basis means that maintaining continuous PI cover is critically important. Any gap in cover could leave you exposed to claims from work done during the gap period and potentially from historic work as well.
When changing insurers, ensure there is no gap between the expiry of one policy and the inception of the next.