To put simply, the Extended Indemnity Period (EIP) is not “extra time” to renew your Professional Indemnity Insurance. There appears to be a common misconception of what the Extended Indemnity Period (EIP) is intended for. This article aims to clarify matters whilst also addresses the potential implications and impact on a practice entering the EIP. 

In October 2013, the EIP was introduced following the closure of the Assigned Risk Pool (ARP). The EIP is essentially a 30 day period for firms that have been unable to obtain insurance before expiry of their existing policy the opportunity to source and secure appropriate qualifying insurance cover.

Practices must inform the SRA that they have entered into the EIP within 5 days. Whilst the EIP does offer a greater degree of leniency than the ARP did previously and the terms are less punitive, it is of our understanding that the EIP has on occasion been misinterpreted and as a result miscommunicated which could have been detrimental to these solicitor practices. 

Another important consideration for practices is that participating insurers who provide qualifying insurers have an obligation to advise the SRA whom they are insuring.  They also have an obligation to advise whom they believe may well be in the EIP as they would not renew a particular policy. Whilst we cannot speak for the SRA, we presume that a practice advising the SRA of the situation, would be viewed more positively than one that the SRA finds out about via another source.

In the past couple of years, we have seen an increasing number of practices looking to renew their cover in the EIP following expiry of their existing policy. In many of these circumstances these firms that have entered the EIP purely because they did not address all of the required paperwork in time. Effectively viewing this extended period as just further time to arrange their insurances.

The SRA stresses the importance of solicitors firms “continuing obligation to ensure they have qualifying insurance in place at all times” and whilst we understand the importance of our clients prioritising their day to day work, their insurance should be held with the same high regard given this duty.

 

What are the potential implications? 

Firm Reputation: It can affect directly on how insurers perceive your firm. They may question whether a practice is badly managed and or if they take their insurances and your regulatory responsibilities seriously.

Insurer Continuity:  Insurers will on occasion decline to renew cover for firms entering the EIP without a credible reason for doing so; thus causing a break in continuity of insurer, resulting in the practice losing the bank of premium and relationship they may have built up.

Restricts alternative insurers: Certain insurers refuse to provide terms for practices that fall into the EIP.

If a practices incumbent insurer has declined to offer renewal terms, those (limited) willing alternative insurers will often question why this has happened. It will create doubt in their minds to provide you alternative insurance and lead to further questioning in order for them to gain comfort to provide insurance for your practice.

Limits the best results for you: Without valid reasoning for entering the EIP, the point above highlights those firms reduce the available options of insurer markets to them but also they are restricting the time brokers have to negotiate the best terms possible on behalf of the firm. Whilst alternative insurance may be sourced, the terms put forward may be punitive terms as a result.

Enter the Cessation Period:  Practices that do not source qualifying insurance from a participating insurer will fall into the Cessation Period (CP).

Unlike during the EIP during the 60 day CP, firms are not permitted to take on new work but they are permitted to continue to work for existing clients while closing their business in an orderly manner.

Failure to comply with this strict rule will result in disciplinary action.

Whilst the EIP permits practices to continue taking on new instructions; you could argue that morally if a new matter cannot or may not be concluded within the 90 days from the expiry of their last policy, practices should not be even considering taking on this new work, as they may not be able to conclude it.

If claims activity has been the main reason that a practice entered the EIP and CP, it is important to appreciate that any new insurer must back date coverage to coincide with the expiring of your last period of insurance. The purpose of this rule is to prevent firms from using the EIP and CP to blanket notify your last insurers of an issue, perhaps with a rogue fee earner or a number of files whereby the practice has undertaken work outside of their core competencies and source insurance with a limited tail of liability. If you were to undertake a review and blanket notify insurers, your new insurer would be walking into these claims; any prudent underwriter is very unlikely to want to do this, if they were the premium and excess structure offered would be reflective of this.

Any practice experiencing challenges similar to those described above, it may well be prudent to act now; undertake a review of file and work well in advance of your renewal so not to limit your options at renewal. Dealing with potential matters early can often result in adopting mitigation strategies or even redress actions so those clients are not affected nor is your claims history.

Recently, we have seen insurers taking a tougher stance and certain insurers refusing to renew a firms PI insurance solely based on the firm's failure to complete their proposal form in time and even with a sound risk profile.  To underwriters, delay to address insurance can demonstrate a lack of effort and care and in turn reflects on how the firm conducts their business giving obvious cause for concern. 

The EIP was of course put in place for a reason and exists to protect solicitors firms, therefore we as well as insurers understand that there are always going to be times where there are extenuating circumstances. The focal point is communication; maintain contact with your broker in order to keep insurers updated on why there may be delay then these circumstances can be addressed without any unnecessary issues. We are often able to agree extensions on policies to allow further time but this requires us being aware and informed.

Here at Lockton, we want to ensure the best for our clients, which is why we always engage with you as early as possible to commence the renewal process. It is important that we allow you sufficient time to complete your renewal submission, equally we want to make sure that we have the appropriate time to source the best terms to meet your insurance requirements.