It may seem cost-efficient to change insurers, but there are several issues you must evaluate before moving a policy from one insurance company to another.
“The pitfalls of switching are especially apparent with professional liability coverage, wherein your actions can cause reaction by your client and a claim filed,” says Karen Miller, president of Royal Marine Insurance Group (RMIG).
However, adds Miller, this advice can also be applied to some general liability policies.
Smart Business spoke with Miller about how to ensure your coverage doesn’t leave you unprotected at any point during your switch.
What should you know about your policy before switching?
Depending on your business culture, it is highly recommended that you check your policy to determine the ‘policy form’ the coverage was underwritten from.
Remember that in many cases your policy is written on a claims-made policy form. Unless you notified your insurance company of the potential claim before the policy ended, you have no protection for a claim made after the policy has expired or has been cancelled even if the claim happened or the alleged error occurred during the time you were insured. Insurance policies differ among insurance companies, as do state insurance requirements. In regard to this type of policy your agent should advise you of the option to purchase ‘extended’ coverage if you are going to change insurers. This provides you with some added coverage should a claim occur within a certain period following the end of the policy period.
But, in general, a professional liability claim needs to meet three criteria to be considered for coverage. One, there must be an active policy. Two, the policyholder must not have had knowledge of the claim before the policy started. Three, the services that led to the claim must have been rendered after the retroactive date.
This unique claims-made feature puts an extra burden on you if you relocate your professional liability policy to a new insurance company. You need to evaluate your choices based on the retroactive date as well as the differences in the policies and/or brokers, the impact of reductions in coverage, the concern about claims that fall between two policies and the disclosure of information to a new carrier.
How can you ensure that your coverage will be retroactive?
Check that the insurance company you are considering as a replacement is offering you the same coverage with the earlier retroactive date. When you maintain your coverage, your retroactive date should stay the same.
For instance, the policy you purchased with Insurance Company No. 1 on Dec. 10, 2005, should still provide you with a retroactive date of at least Dec. 10, 2005, if you have continued the coverage, even if you are now with Insurance Company No. 2.
New policies will not provide coverage for claims or potential claims that the policyholder is aware of on the day coverage begins with a new provider. A claim is a demand for money or services. A circumstance (also known as an incident or a potential claim) is an issue that a reasonable and prudent person could expect to result in a claim. So double- and triple-check that you do not have claims or circumstances that have not been reported to your existing professional liability company.
Can the changes you make to your coverage affect risks from your previous policy?
If you have to make some tough choices to control your renewal costs, such as lowering your limit of liability, eliminating attractive options like ‘first-dollar defense costs coverage,’ or increasing your deductible, discuss these with your agent and compare your policy form before making a change. Your firm will be subject to the financial risk of these changes today when the claim is made, even though the claim may stem from an alleged mistake you made when you had a policy that offered you financially friendlier terms.
The choice you make now will impact risks from your past. For the same reason, be aware of the limitations on your new policy that affect previous exposures.
What types of terms and conditions should you look for in a new policy?
Don’t be afraid to ask what you are buying. What you pay out of your pocket can be more than your limit, deductible and premium. That’s startling. Some policies pay you for your attendance at claim proceedings or cut your deductible in half if you participate in mediation or have fewer exclusions; take advantage of these savings.
Ask your broker to provide you with a comparison between the different policies. If this does not occur, you should consider a switch to a new representative. Create your own checklist from the features of the policies you are being sold. At a minimum your list should include retroactive date; deductible options and their cost; persons/entities covered; management and financial ratings of the company; definition of professional service; differences in exclusions; and coverage territory.
You’ll also want built-in features that reduce the deductible, such as payment for attendance at claim proceedings and risk management support services, like continuing education, contract review and seminars.
How can you get informed about insurance issues?
There are plenty of sources to help you gather and process information. Professional societies poll their members on insurance issues and some interview underwriters and other representatives from the professional liability insurance markets.
Ask your colleagues. Check the Internet. And, most importantly, remember that a portion of your premium is paid to your insurance agent/broker and you should expect service. Ask them to perform.
Karen Miller is president of Royal Marine Insurance Group (RMIG). Reach her at (305) 477-3756 or firstname.lastname@example.org.