Selling your professional practice: PI insurance and run-off in 2026

Selling a regulated firm is not only a corporate transaction — it triggers a defined set of professional indemnity obligations that outlive the sale. The regulator, the buyer, and the outgoing principals each have a stake in how the cover is structured, and the decisions taken during heads-of-terms can shape the deal for years afterwards.

Run-off — the statutory and contractual layers

Run-off cover exists because professional indemnity policies operate on a claims-made basis. Once the firm ceases to trade, no live policy remains to respond to a matter that surfaces later, and the outgoing principals need a separate arrangement to cover the tail of past work. There are two layers to consider: the statutory or regulatory minimum, and the contractual position agreed in the sale.

The regulatory layer varies by profession. Under the SRA Minimum Terms and Conditions, clause 5.6 requires solicitors to arrange six years of run-off cover from the date of cessation, funded by an initial cessation premium payable to the last participating insurer. RICS Rules of Conduct Rule 9 sets a similar six-year requirement for surveyors. For accountants, ICAEW Bye-law 61 typically expects two years of post-cessation cover, subject to updated regulator guidance. IPRU-INV 13 imposes a three-year minimum on FCA-authorised financial advisers. ARB Standard 8 does not fix a duration for architects but requires that reasonable arrangements be put in place for a period appropriate to the nature and duration of the work carried out.

The contractual layer sits on top of that. Buyers may require run-off in excess of the regulatory minimum, and vendors may agree to it as a condition of the deal.

Deal structure and PI — share vs asset purchase

How the transaction is structured has a direct effect on the PI position. Where the deal is a share purchase — governed by the transfer provisions of the Companies Act 2006 — the corporate entity continues, its regulatory permissions may transfer with the shares, and in principle the existing PI policy can continue to respond to legacy work provided the insurer is notified and consents to any change of control. In practice, insurers commonly reserve the right to reprice or terminate cover on a change of control, and the SPA should provide for that.

Asset purchases behave differently. The buyer takes named assets — client files, work in progress, staff contracts, sometimes goodwill — but the selling entity typically remains liable for pre-completion acts and omissions. That entity may cease to trade shortly after completion, at which point run-off is triggered and the buyer's own PI does not automatically respond to the historic work. Some regulators recognise the buyer as a successor practice for particular categories of work, which alters the position, but that is not automatic and requires a specific designation.

The choice between share and asset structures is usually driven by tax and warranty considerations, but the PI implications are material and belong in the early conversations with corporate solicitors and brokers.

The warranty period in the SPA

The sale and purchase agreement typically includes warranties given by the seller about the state of the practice at completion — the accuracy of the accounts, the status of client files, the absence of undisclosed circumstances, the currency of PI cover. These warranties usually survive for a defined period, often two to seven years depending on the type of warranty, with tax warranties running longer.

The warranty period matters for PI because a claim under the SPA warranties may itself constitute a matter that the outgoing principal's run-off policy is asked to respond to, or which the buyer's own PI is asked to cover if a successor-practice arrangement is in place. Insurers will want to understand the warranty structure before pricing the run-off. Financial caps on warranty liability, retention arrangements, and any escrow held back from completion also inform the insurer's view of exposure. Fair presentation under section 3 of the Insurance Act 2015 requires disclosure of these features, and the buyer's and seller's respective brokers may need to coordinate so the same underlying facts are communicated consistently to each insurer.

Retroactive-date continuity for the buyer

A retroactive date on a claims-made PI policy is the earliest date of professional work the policy will cover. Where a buyer takes on client files and continues to advise those clients after completion, past acts may generate future claims. If the buyer's PI has a retroactive date that post-dates the transferred work, those claims will fall outside cover and back onto the outgoing principal's run-off — or worse, on nobody at all where the run-off does not respond to the specific matter.

The remedy is to negotiate the buyer's PI to include a retroactive date matched to the earliest transferred file, or to inception of the practice being acquired. Insurers may charge an additional premium for this extension and may require a fuller disclosure of the acquired book. Where the buyer's insurer will not extend the retroactive date, the outgoing principal's run-off becomes the primary route for legacy exposure, and the run-off limits, aggregation provisions and duration all become more important.

Practical alignment between the two policies — matching definitions of insured activities, sub-limits and territorial scope — reduces the risk of a claim falling into a gap.

Successor-practice designation

Some regulators — the SRA is the clearest example — recognise the concept of a successor practice: a firm that takes on the work of a ceased firm in a way that transfers the run-off obligation to the successor's own PI policy. Where a successor practice is properly designated, the outgoing principals may not need to purchase separate run-off cover, because the succeeding firm's policy responds to legacy matters.

The cost implications cut both ways. For the vendor, avoiding a cessation premium can preserve meaningful sums — a six-year run-off premium is typically a multiple of one full year of premium, so absorption by a successor can materially improve net proceeds. For the buyer, the assumed exposure needs to be priced in: the buyer's own insurer will usually load the premium to reflect the acquired book, sometimes for several years after completion. That loading may be visible immediately or may emerge at the first renewal after the deal, when the insurer has more data.

Successor-practice designation is not a purely administrative point. Regulators expect specific tests to be met — continuity of ownership, continuity of clients, holding out — and the position should be documented before completion, not assumed afterwards.

Practical timing — when to start the run-off conversation

The most common timing error is treating run-off as a completion checklist item. By that stage the deal economics are usually fixed, and any surprise on the run-off premium either falls on the vendor as an unexpected deduction from proceeds or destabilises the price at the eleventh hour. A more considered sequence begins during heads of terms.

Indicative run-off quotations can typically be sought once the outline transaction structure and cessation date are known. Insurers will usually provide a non-binding indication based on the current renewal declaration, headline claims history and the expected cessation date. That indication is not a binding quote and may move as further information emerges, but it gives the deal team a working figure. Binding placement is usually finalised close to completion, because insurers price against the actual cessation date and the final financial picture at that point.

Where the deal involves a successor-practice arrangement, the buyer's broker also needs time to obtain the loaded quote from the buyer's insurer, and the two placements need to be aligned so that no gap opens between the last day of live cover and the first day of the tail arrangement.

Pricing dynamics of run-off cover

Run-off is typically priced as a multiple of the final annual premium. For a six-year period a common range is 200% to 350% of one year's premium payable as a single upfront cost, though the precise multiple depends on profession, claims history, limits of indemnity and prevailing market conditions. Higher-risk professions and firms with adverse claims histories can sit above that range; smaller, cleaner books can sit below it.

Market conditions matter. A hardening PI market — as several professional segments have experienced through 2024 and 2025 — pushes run-off pricing upward because insurers price the tail against expected future frequency and severity, and against their own reinsurance costs. A softening market may compress the multiple. Insurer appetite for cessation risk is narrower than for live business, so competition among quoting insurers is often thinner, and the last live insurer may be the only realistic route for run-off.

Vendors can reduce cost uncertainty by giving insurers a full picture at the indication stage — accurate turnover splits, complete claims data, and a realistic view of any transferred liabilities — because insurers who feel underinformed at indication tend to load the binding quote to cover the ambiguity.

Common pitfalls and red flags

Frequently asked questions

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