Year after year you are required to complete a malpractice application. It is enough to make you want to scream. Accountant and attorney malpractice insurers generally want an updated application every year. But Business Owners, Workers Compensation and Commercial Auto insurers renew each year without an application. Why the difference?
The exposures for Business Owners, Workers Compensation & Commercial Auto rarely change much from year to year. Policy premiums go up or down based on the insurers' rates. The exception is Workers Compensation where an audit is performed annually to address any payroll changes. Normally unless a business buys or sells its buildings, cars or business personal property the exposures remain constant from year to year. These policies are rarely re-underwritten.
Malpractice insurance exposures can dramatically change from year to year. Plus the time between when an act occurred and a claim is reported can be many years in the making. Malpractice insurers normally re-underwrite each firm annually. There are many reasons for this. If an accounting firm or law firm accepts a new client, that client may have needs in practice areas that the firm did not do work for in the past. The client could be a high profile client. The firm may also have grievances or claims that may not have been reported during the policy year. The underwriter will want an explanation as to what had caused the claim and what steps are being taken to prevent a future occurrence. Unfortunately for the firm, with malpractice policies being written on a claims-made policy form, not reporting a claim or grievance can set the firm up for a claim denial at a later date because of ‘Prior Knowledge’. Firms need to exercise great care with these renewal applications as not properly answering any application questions can cause issues down the road.
Accountants & attorneys may come and go with the firm. Firm staff turnover can be a concern. New professionals coming to the firm may bring different expertise. This may cause a firm to pursue clients and practice areas that they never worked in. New professionals may have had claims or grievances from a prior firm. A firm may have decided to change their client collection practices; this can mean more or fewer few fee suits.
Changes in a firm’s makeup and internal controls are addressed on the annual renewal application. The malpractice underwriter can assess if the firm still meets the insurer’s underwriting criteria, whether the insurer will offer renewal terms and what the renewal premium should be.