Yes, past claims impact the premium of a professional indemnity insurance policy. Insurance companies evaluate a firm’s claim records over the past five to ten years as a likely barometer of future incidents. Thus, the size and the frequency of a previous claim is taken into account and has a significant bearing on a firm’s premium in case of a professional indemnity insurance.
When the claim is very high, the existing professional indemnity insurance company can increase the premium at the time of policy renewal. However, in case a firm approaches a new insurer, the insurance premium might be bit lower, but again it depends on the nature of the past claims.
In any case, if the claim is not substantial, there would be no change in professional indemnity insurance premium rates. The professional indemnity insurance company decides the nature and the substantial weight of a past claim while calculating the premium rate. While getting a new policy or renewing the policy, it is always advisable to ask the insurer and get clarity on types of claims that would increase the premium rates.
Along with the claim history, other factors also impact the premium of the professional indemnity insurance policy. Some of the factors affecting the premium rates are:
A firm’s area of practice can affect the cost. The kind of projects that a firm handle, again determines the overall premium rates. For example, a commercial building is given a lower premium rate than a residential family household.
The type of services a firm offers can influence the overall premium. Architects are at a lower risk level than a structural engineer, hence a lower premium.
Insurers like to see that the firm is participating in risk management initiatives and thus provide a credit for participation. Risk management activities may include, installation of adequate safety measures, peer reviews, project selection process and certificates of insurance from the sub-consultants. These are some of the risk management that insurers ask for.
A contract based business:
Insurers prefer to see that the firm is using a contract for all its projects. If the firm does have a claim, it makes it easier to defend if all the terms of the contact are laid out. Verbal contracts are not favourable because it’s the firm’s word against the client’s word.
Incepted in 2008, ‘Rextas Designing’, a Mumbai-based web designing company was involved in providing user interface and website solutions to its clients. The company was involved in many web designing projects and had a vast base of clients situated in different parts of India.
Considering the nature of its business, Rextas Designing purchased a comprehensive professional indemnity insurance policy. In 2013, the company bagged a major client who wanted a website revamp along with its content and SEO marketing.
The project was massive and took two months to optimise the client’s website. Once the project was complete, the web designers handed over the site to its clients.
However, the web designers had used some unlicensed images on the client’s website due to which the client faced copyright infringement issues. The client, in turn, sued Rextas Designing company for using unauthorised pictures on its website.
Since the company had taken a professional indemnity insurance policy, they were able to cover the losses arisen due to the filed claim. The whole situation was successfully sorted by the insurers, after which the business came on track again.
After few months, Rextas Designing approached the insurers for the renewal of its professional indemnity insurance policy. The insurer took into account the last year claim while calculating the new premium rate.
As the claim amount was high, the insurer increased the premium of the professional indemnity insurance policy at the time of policy renewal. Thus, the past claim of unlicensed image usage on client’s website led to increasing the premium rates for the firm.