Run off insurance, what is run off insurance? I hear all the time. As someone that had a previous life in insurance, the answer is quite obvious. It’s a form of Professional Indemnity Insurance that you pay AFTER you sell, retire or go out of business. The problem is that most people in the Beauty industry are NOT from an insurance background. Here I give you some of the most important information of your career.
Some 5 years ago I received a phone call from a lady asking for my help. She had been sued for causing a scar on a client who put in a claim some two and a half years AFTER she closed her business and retired. She had always kept up with her insurance premiums and so she though she was covered. After calling her insurance company she was told that Professional Indemnity insurance covers on a “claims made basis” and she had failed to keep up her policy. When I spoke to her she had spent £120,000 defending the claim. The claimant was eventually awarded £70,000 and her solicitors put in over £200,000 in fees which they were awarded. After working their entire lives, she and her husband were made homeless and left penniless. I heard a few months back that she folded under the pressure and unfairness of it all and she took her own life as a result. I’m sure that the claimant and her solicitors must be very pleased with themselves at taking the entire life savings from a pair of pensioners and driving them to suicide.
Sadly, this is a true story and it happened here in the UK and it can happen to you if you don’t get run off insurance. Anyone can come after a professional for any reason up to 6 years after the service was delivered. No win No fee solicitors take on any case they can, even if it doesn’t have merit. Everyone in any service industry is vulnerable but if you’re in the Beauty industry, chances are that you will not be seeing retirement without having a solicitor’s letter through the post.
We are extremely vulnerable to people who make a living having beauty treatments and faking injuries. The problem is that insurance companies have created a monster because often, they prefer to settle bogus claims than fight them. For them it’s simple economics. Fighting a claim is so expensive that they prefer to throw a couple of thousand Pounds to the solicitor who has all but written a couple of letters than fight the claim to trial. This means that unscrupulous solicitors are keen to take ANY case, regardless of merit! I will always, take any sort of bogus claim to trial. I see it as a matter of principal. I see it as my name and reputation on the line.
The way run off insurance premiums work is that first couple of years you pay the same amount as your last premium. The premium then lessens with the risk at a rate of about 20% a year. After six years you no longer need it as people can no longer come after you.
The insurance company I use gives automatic run off insurance free of charge in case of death, or not being able to work due to disability. They felt that this is important because it is not unusual for such a claims to occur AFTER the death of a person. Leaving their family to deal not only with grieving but also a no win no fee solicitor going after their home and making their children homeless. Classy right?
I use a company called London Market Underwriters. For details of London Market Underwriters are here if you need to speak to them or get a quote.
So now you know. When you sell or wind up your business, you must keep your run off insurance going so factor this in when setting your price. You must have run off insurance for services you no longer offer even if you’re still in business. If you close your business, you need to pay insurance for six years.
I know this is a scary post but one that can possibly save your house and your pension. Like anything else in our industry. Knowledge means you’re protected. This is just a part of the industry we have chosen to be in. We must see it as such and fight the bogus claims when they come in. Keep our run off insurance for six years and rest easy knowing that your insurance company is fighting this for you whilst you’re in the Bahamas.