New businesses

Getting insurance before you start trading

In short: Professional indemnity is claims-made: it answers claims brought against you while the policy is live, not claims about work done while it was live. That single feature is why cover should start on or before your first piece of chargeable work rather than after it, why gaps between policies are dangerous, and why run-off exists at the other end. Public liability works on a different trigger and simply needs to be live on the day you are on site.

Claims-made, and what it actually means

Most UK professional indemnity policies are written on a claims-made basis. The policy that responds is the one in force on the day the claim is made against you — or, for most wordings, the day you notify a circumstance that might become a claim. It is not the policy that was in force when you did the work.

Follow that through and two things become obvious. Doing work uninsured and buying cover afterwards does not retrospectively protect that work: the later policy will exclude anything you already knew about, and may exclude work done before a specified retroactive date. And letting cover lapse does not end your exposure, because a claim can arrive years after the job.

Public liability is different. It is triggered by injury or damage occurring during the policy period, so the test is where you were and what happened, not when someone complained.

Retroactive dates

A professional indemnity policy usually carries a retroactive date: work done before it is not covered, whenever the claim arrives. For a genuinely new business that date is normally the inception date, which is exactly right — there is no earlier work to cover.

Where it matters is if you did related work before incorporating, perhaps as a sole trader or under a previous company. If you want that earlier work covered you have to say so, and the underwriter has to agree a retroactive date that reaches back to it. It will not happen by default.

Work you did for a previous employer

That work sat under the employer’s policy, and it stays there. It does not travel with you when you leave, and your new company’s policy does not pick it up. If a claim arises from something you did for a former employer, it is their policy — or their run-off cover — that is in point.

Which is why it is worth knowing whether a former practice bought run-off when it closed or restructured. If it did not, and a claim arises, the position can become uncomfortable for the individuals involved.

The other end: run-off

When a firm stops trading, the claims-made structure means exposure continues. Run-off cover keeps a policy responding to claims about past work after the business has stopped doing new work. Some professions require it for a set number of years; for others it is a commercial judgement about how long a client could still sue.

It is worth understanding at the start rather than at the end, because it is part of the true cost of being in business, and because a firm that has never bought cover has nothing to run off.

Setting the start date sensibly

Pick the date you expect to begin chargeable work and set inception on or before it. If that date moves, tell your broker — moving inception before cover begins is usually straightforward. If you are waiting on a first contract, do not wait to arrange the quote; arrange it and set the date.

Where a client contract requires evidence of cover before you start, you will need the policy or a certificate in hand, which is another reason not to leave it to the week you begin.

Frequently asked questions

Can a policy start on a future date?

Yes. Cover is routinely arranged to incept on a specified future date, which is what a new business usually wants.

I have already done a small job with no cover. What now?

Tell your broker before you buy. Whether that work can be brought within a new policy depends on the retroactive date the underwriter will agree and on whether you are aware of anything that might give rise to a claim. Do not simply buy a policy and hope.

Does professional indemnity cover work I did as an employee?

Not through your new company’s policy. That work belongs to the employer’s cover.

What is a retroactive date?

The date before which work is not covered, however late the claim arrives. For a new business it is usually the inception date.

If I stop trading, does the policy keep working?

Only if you buy run-off. A claims-made policy that is not renewed stops responding, even to claims about work it originally covered.

Starting out, and no trading history to show?

Our new-business proposal forms ask what you expect to earn and where you did this work before, instead of turnover figures you do not have yet. Bristol-based, FCA-regulated, wordings first.

Call 0117 325 0027 info@apexinsurancebrokers.co.uk

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.

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