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Why it pays for architects to have run-off cover

7 March 2016
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Shaky foundations

To paraphrase a wise man, it’s not a building’s beauty you should look at, it’s how it’s made. That’s what stands the test of time.

If you’re an architect or a professional working in the construction industry, this will probably ring very true.

But sadly, not all buildings last. Cracks appear, materials deteriorate, flaws rear their ugly heads.

Often, it can take years for problems to appear. But sadly, when they do, it’ll be the person who did the work that has to answer the awkward questions. Particularly if it’s proven the problems could’ve (should’ve) been avoided.

Out of sight, not out of mind

When things go wrong and a professional person is culpable, a claim is usually made against that person pretty soon after what happened, happened.

That’s not usually a problem. If you’re still actively running your business your professional indemnity (PI) insurance will protect you (if you have it).

But research also shows that over 40% of claims take up to three years to be filed. Sometimes longer. So, if you’ve cancelled your policy because you’re retired or moved on, it could spell trouble.

That’s because PI insurance is a ‘claims made’ policy.  In simple terms, to be covered, your insurance has to be running when you did the work and when the claim is made. If you cancel your insurance after finishing a project, your work on that project (and any other) isn’t covered.

It’s not just architects, or those working in the construction industry, who should take note. Any business could potentially run into problems. It’s crucial then, to think carefully about the long-term risks when doing work, of any kind, for a client.

Run(off) for cover  – not just for architects

So what can you do to protect yourself?

The answer is something called run-off cover .

It’s an add-on to your existing PI insurance and comes into play when you’re no longer trading. Its job is, specifically, to cover claims made against you for work you did in the past.

Sounds great. The only problem with that, of course, is that it costs money.

Look after the pennies and the cover will look after itself

So why, if you stop work, should you keep paying for cover?

The short answer is because there’s still risk there. It doesn’t stop just because you have. The work you did on that supermarket project, say, could be around for years – long after you’ve said cheerio to the nine-to-five. And if something goes wrong with it, you’re still liable.

The money you pay to the insurer means that it’ll be able to help if there’s a claim against you. That might jar a little at first because you’re not actually seeing anything in return – you’re paying for work you’re already done and that was insured at the time.

But if you look at it from the insurer’s point of view, it has to charge something. Otherwise, it’s looking at covering millions of pounds worth of risk without getting any money back to pay potential losses. Multiply that by however many thousands of policyholders it has and that’s a business model that very quickly doesn’t add up.

However, to reflect the fact that risk does reduce over time, what you pay reduces too. Obviously, this reduction depends on your insurer and the nature of the work you did, but you’ll probably be looking at around 10% every year. This continues until you hit the insurer’s minimum premium.

Given the possible consequences of not having cover at all, we’d say that makes it pretty good value.

If you have any questions about this or need more info, just give us a call on 0345 222 5360.

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