The Retroactive Date (Part 2)

My last article The Retroactive Date (Part 1) addressed how retroactive dates can differ (from an actual date, to “unlimited”, to no date at all). I suggest you read that article before this one if you haven’t already done so.

This article will discuss requests to underwriters for “upgraded” retroactive dates, programs/ schemes/facilities, areas to watch for when dealing with retroactive dates, and loss discovered policies.

Upgrade the Retroactive Date

As was discussed in the previous article, many insurers will apply a “policy inception” Retroactive Date for first-time buyers. At your request though, some may agree to offer options which provide more retroactive cover for an additional premium. The additional retroactive cover option could be “unlimited”, but I have also seen options for an extra year or two of retroactive cover.

Let’s use today as an example and make the Retroactive Date “policy inception” (for a first-time Professional Indemnity buyer), meaning that the Retroactive Date would also be today’s date of 24 February 2022. The broker however asks for additional retroactive cover, and the insurer agrees to offer a 24 February 2021 Retroactive Date (one additional year of retroactive cover) for an additional premium. This superior Retroactive Date would mean that claims arising from acts committed after 24 February 2021 would be covered (instead of only covering claims arising from acts committed after 24 February 2022). More retroactive cover means the potential for more covered claims – as acts going further back could be covered. This could be extremely beneficial to your client. Even if the client chooses not to purchase the expanded retroactive cover, you have provided them with an option to do so and have therefore taken steps to further protect their business. You have also reduced the potential for claims against your business for broking errors or omissions.

Programs, Schemes & Facilities

Retroactive Dates are frequently “unlimited” on programs, schemes, or facilities (I will call these “programs”) as brokers often negotiate with insurers to offer an “unlimited” Retroactive Date to each individual insured under a program. A program usually represents a large group of insureds with a similar risk profile as well as a large premium pool for insurers to pay claims from. Brokers are therefore often able to negotiate superior coverage, including superior retroactive cover in the form of a superior Retroactive Date, for all insureds participating in the program.

This would already be on your radar if you run Claims Made policy programs. I have mentioned it here for less experienced brokers.

Areas to Watch & Be Careful

Retroactive Dates are elements of Claims Made policies which need to be carefully reviewed and thoroughly discussed with clients and prospects. They are a component of the cover where brokers often make mistakes, particularly when there is a change of insurer.

Brokers need to pay particular attention to Subjectivities/Conditions on quotations when changing insurers. Such Subjectivities will regularly stipulate the need for evidence of the current Retroactive Date, often by providing the expiring insurer’s policy schedule. Some Subjectivities will state that if such evidence is not provided, often within a set timeframe, then the Retroactive Date with the new insurer will revert to “policy inception” (instead of “following” the current insurer’s Retroactive Date as it needs to). Be very careful when addressing such Subjectivities, and ensure you review the timeframes within which you must provide such evidence with great caution.

Going on from this, special attention needs to be given to ensuring that the Retroactive Date is correctly noted on the many on-line quoting platforms available in the market. One would expect an existing insurer’s renewal “import” on a platform to maintain the “current” Retroactive Date. When obtaining alternative quotations however, the date may need to be keyed-in manually and it is at this point that a broker can make an error by entering the wrong date, or an omission by not entering a date at all. Depending on the portal, and the error or omission, the Retroactive Date could revert to “policy inception” with the new insurer (even though the existing insurer offers retroactive cover under the current policy). When changing insurers, it is critical that the current Retroactive Date be maintained. If it isn’t, you could have a real problem if a claim arises from an act that was committed between the old Retroactive Date and the new, more recent one.

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Loss Discovered Policies

A final note regarding Loss Discovered policies which operate in a similar way to Claims Made policies – whereby it is the policy in place at the time that the loss was “discovered” that responds to the loss. I am purposefully using the term “loss” instead” of “claim” here, as policies arranged on this basis respond to first-party losses (the first-party being the insured) rather than third-party claims. An example of a policy which is arranged on a Loss Discovered basis is Crime which covers loss of money, securities, and often other property. The first-party components of a Cyber policy, covering notification costs, forensics costs, extortion costs and business interruptions costs, amongst others, operate in a similar way. Here the Insured suffers from a cyber event and incurs costs associated with that event. Provided that the cyber event is discovered within the policy period, cover could apply. With both these covers (Crime and Cyber’s first-party components), the insurer pays the insured directly for losses/costs incurred – i.e. a third-party claim against the Insured is not the trigger for cover, the loss/costs incurred are the trigger.

The reason I raise Loss Discovered policies within the context of an article on the Retroactive Date is that these policies can also have Retroactive Dates applied to them. Such dates act to limit cover based on the date the loss/cyber event “occurred”, rather than the date the loss/cyber event was “discovered”. For example, if a policy is in place at the time the loss/cyber event is discovered, and that policy has an “unlimited” retroactive date (or no retroactive date, see the first article), then, subject to the normal terms and conditions of the policy, the policy would respond. If however there is a retroactive date (which is used to limit the period within which the loss/cyber event could occur for cover to apply), then even if the loss/cyber event is discovered during a current policy period, the policy may not respond. A bit technical, but worth understanding!

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Disclaimer: The information provided in this article is not, and is not intended to, constitute legal or financial product advice. It is intended to provide general information in relation to the topic being discussed which is only current as at the date of this article.

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