How to Protect Your Business When Switching Professional Liability Insurers

coverage gap

As a small business owner, you have a long list of responsibilities to your company. Choosing the right business insurance to protect your assets is one of the most important items on that list. It makes sense to review your insurance options on a yearly basis. While it is easy to switch certain policies like commercial property, it is not as simple when it comes to your professional liability insurance.

Why is it Risky?

Most insurers offer professional liability insurance on a claims-made policy. For a claims-made policy to provide coverage for a specific claim, the claim has to occur and be reported to the insurance carrier during the policy term. Claims-made policies also include a retro date on the declarations page which defines the beginning date of when claims can occur. When you renew coverage continuously with one insurer, the retro date is usually the first date of the original policy.

When you switch to a new carrier, this retro date is typically not carried over and any claims that occur from an incident in your previous policy period will not be covered by your prior or existing insurance carrier.

Protect Your Business

Switching professional liability insurers is tricky unless you have a plan in place to protect your business. Here are five steps to protect your business and minimize risk when switching professional liability insurers.

Understand your policy.

Read your professional liability policy to find out if it is claims-made or occurrence based. If it is occurrence based, there is likely no cause for concern because there is coverage no matter when the claim is filed as long as it occurred during the policy period. If it is a claims-made policy, continue with the rest of the steps in this list.

Identify potential claims.

Look back at your activity and identify incidents that may result in a claim. Were there any times that you missed an important step in helping a client? Has a client expressed their dissatisfaction with your business? Make a list of these incidents and gather any facts and documentation you have on file.

Notify your existing carrier.

Contact your existing insurance carrier with your list of incidents and ask what information they need to accept these incidents as potential claims. Every insurance carrier has a different set of requirements. If you fail to provide enough information, they can still deny the claim even when you report it during the policy period.

Buy an extended reporting endorsement.

Extended reporting period (ERP) endorsements, or tail coverage, are one way to protect your business from professional liability claims. For an additional premium, you can extend your coverage for one or two years after your policy expires. This gives you the opportunity to report claims that arise from an incident during the previous policy terms to your past insurer.

Ask for prior acts coverage.

Some insurers include prior acts or give the option to purchase coverage. When you buy prior acts coverage on a professional liability insurance policy, your new insurer is agreeing to offer coverage for any new claims that arise that happened prior the policy effective date.

Insurance is necessary to protect your small business from claims and eliminate out-of-pocket expenses, the last thing you need to do is to switch carriers too swiftly. Do your research and follow these steps to make sure you avoid any gaps in your small business professional liability insurance.