One of the most important things to understand about Professional Indemnity Insurance is that it is written on what’s called a “claims made basis.” This means the policy does not cover you based on when you did the work or gave the advice. Instead, it covers you based on when a claim is actually made against you.
For example, imagine you are an accountant who prepared tax returns for a client two years ago. At the time, you made an error that nobody noticed. Two years later, the client receives a penalty from the ATO and decides to take action against you. Even though the work was done years ago, the claim is being made today. Under a claims made policy, what matters is that you hold valid Professional Indemnity Insurance today when the claim comes in, not that you had a policy in place when you originally did the work.
Because of this structure, the retroactive date on your policy is absolutely critical. The retroactive date is the point in time from which your past professional services are covered. If your retroactive date goes back to when you first started in business, then all of your past work is covered, as long as you keep your policy active. But if the retroactive date is more recent, for example, the date you first took out cover, then anything you did before that date would not be insured if a claim comes up later.
Here is why this matters so much. If you ever cancel your policy, let it lapse, or switch to a new insurer without making sure your retroactive date carries over, you could suddenly lose cover for years of past work. A client could raise a claim for something you did long ago, and you might find out you no longer have protection. Unfortunately, many professionals only realise this after it is too late.
This is why brokers and insurers stress the importance of continuous cover. Keeping your Professional Indemnity policy active without gaps ensures you always have protection, even for advice or services delivered years earlier. Claims can take a long time to surface, particularly in industries like engineering, accounting, or consulting, where the impact of your advice might not be felt until years after the work was done.
In short, with Professional Indemnity Insurance, timing is everything. Claims made policies mean the cover applies when the claim is made, not when the work was carried out. The retroactive date ensures your past work is included, and continuous cover makes sure you do not lose that safety net. By maintaining a policy with an appropriate retroactive date, you protect yourself from both today’s risks and the possibility of older issues coming back to cause problems in the future.