Why can’t insurers offer PI insurance for the length of my contract?

Based on our research, for consultants and project professionals in Australia, having professional indemnity in place is often driven by their clients*.

So why can’t insurers offer cover for the length of your contract only?

Can’t I have a PI cover that is “pay-as-you-go”?

Sadly, it’s not quite that easy.

Clients don’t provide timeframes as to when they make a claim against you.

Professional indemnity policies are arranged on a “claims made” basis.  This means that in order to cover you for a claim, your policy has to be in effect both when the claim is brought against you and when you undertook the work.  Even if your contract is only for three months, a claim may not be made until 6-12 months after the project was completed.

As an example –  you are an independent management consultant working on a customer digital program that runs from June to December.  Your work ends, client appears to be happy, and you decide to cancel the policy in January.  But around March the program starts to experience problems.  The budget doubles and the client blames you for the blowout.  Your old client comes after you with a $3m claim.

Unfortunately, as you have cancelled your PI policy a month earlier, you will not be covered.  Even if the claim is related to the work you did when your policy was in place.

You are now in a world of hurt.

And on timeframes of a claim, Government is at another level

By their own admission Government tends to move a little slower than private enterprise.  So to provide themselves time, they require suppliers (including consultants and project professionals) to contractually ensure that PI cover is in place for a further 6 years after completion of a contract.  Yes, this is probably an extreme requirement by Government and the cost of insurance needs factored into the original engagement bid.

What Should I do?

• Be aware of the differing contractual insurance requirements by client.
• Keep your cover active.
• If you leave the industry or retire, investigate “run-off cover” which is often cost effective.
• When moving insurers, ensure the retroactive needs are met to protect you from the past.

* Based on the Sherpa Insurance 2014-15 survey of management consultants and project professionals.