“There are going to be changes in our firm, what do I need to do?” This is an all too familiar question our agents receive, but a question every insurance company and agent should be happy to answer since it helps minimize risk. Changes also provide the insurance agent an opportunity to help a client. Changes happen and when they do, your professional liability insurance agent should be there to help.
When is the right time to call your agent?
The right time to call your agent is when you expect a change like a merger or acquisition is going to take place. Notifying your agent ahead of the change will ensure time for you to consider your coverage changes. Things to consider include prior coverage, future coverage, and how the policy will respond should a claim arise. Notifying your carrier at the outset or before a change takes place should prevent any unforeseen circumstances from occurring.
Future Coverage Considerations
When a merger or acquisition happens, numerous future implications should be kept in mind. The current cost is one implication that should be considered, as the organizational structure is most likely being affected. In some occurrences, there might be an option to keep your current policy in place. However, we typically ask the firm if they are accepting of the previous firm’s liabilities. A claim could pop up involving employees who are no longer part of the firm, thus impacting the future insurability of the new firm and possibly their premium as well.
In a merger, consider each insurance program and plan to consolidate them. A typical insurance policy will provide coverage for services on behalf of the Named Insured. If you are going to practice under one entity going forward, the policy should be under that entity’s name.
If acquiring, conducting a due diligence process looking at the seller's liability and exposure is a good first step when getting an idea of what your firm is taking on.
Typically, the best solution is for the acquired firm to purchase a tail policy or extended reporting period to cover all the prior work. The purchasing firm usually prefers this as well since they will not be liable for any services provided before the acquisition.
You should expect to pay a higher premium in future years due to the additional exposure your firm has acquired. Advising your current agent of an acquisition is helpful as they’ll be able to communicate what can be expected at renewal, which can help in the firm’s planning process for future years.
One reason why a premium will increase with a merger or acquisition is there is an increase of attorneys at the firm. This will increase the premium as there is more liability for added attorneys factoring in current and future risk. If there is no prior acts coverage or tail policy for the acquired firm, past risk will also cause an increase in premium going forward.
Another reason why premiums could increase is if the new attorney or firm has not carried insurance before. When coverage begins, the insured will experience step rate. Within the first five years of coverage for a new attorney, the premium will increase gradually every year as the carrier is providing more coverage for prior years. This ensures that even if you get sued for a prior incident, occurring after the prior acts date, your carrier will still provide coverage. As the new attorney hits “maturity” the coverage will level out to a consistent rate.
Numerous other factors such as expanding your area of practice or practicing in a new location can raise your premium. It is recommended that you consult your professional liability insurance agent to go over possible premium increases specific to you.
Advice Moving Forward
Tell your agent what is likely to happen and what you want to have happen then develop a solution together. They can help you through the insurance side of the transaction. No matter what the situation, your end goal should be eliminating any potential gaps in coverage.Each situation is different, but the more information the agent has, the easier it is to make the appropriate coverage adjustments.
When your firm is going through a merger or an acquisition, it is important to think about what your professional liability situation will be. There are many items to consider when looking at different plans, from premium to coverage. It is pertinent to find the option that best fits your needs. Having coverage is a vital factor in keeping yourself and your firm in good standing in case of a claim. Speaking with your professional liability insurance agent can help simplify this complex process.