When you stop carrying out regulated activity, your professional indemnity insurance does not quietly wind itself down. A standard PII policy is written on a claims-made basis: it responds to claims notified while the policy is live, not to advice given while it was live. The day your annual policy lapses, every piece of advice you gave over your whole career is uninsured, unless something replaces it. That something is run-off cover, and if you are selling your firm, it belongs on the negotiating table alongside the price.
This article covers what run-off insurance actually does, how the policies are structured, what drives the cost, how long claims can realistically keep arriving, and how the cost gets allocated in a sale. It sits alongside the broader question of what happens to your liability for advice you have already given, which is worth reading first if you have not yet worked out where your liability sits after completion.
What run-off cover actually is
Run-off cover is professional indemnity insurance for a firm that has ceased trading, or ceased the regulated activity the cover relates to. It exists because of the claims-made problem. Your live PII policy pays out on claims made and notified during the policy period. Advice liability does not work to that timetable: a client advised in 2019 may not discover a problem, or decide to complain, until years later. Run-off cover keeps a policy in force to catch those late-arriving claims after the advising has stopped.
In practical terms it covers the same territory as your existing PII: claims for negligent advice, unsuitable recommendations, mis-selling allegations, and the defence costs that come with them, subject to the policy's exclusions and excess. What changes is the direction of time. A run-off policy looks only backwards. There is no new advice being written, so the insurer is pricing a closed book of historic activity rather than an open-ended future one.
That closed book is both the good news and the bad news. Good, because the risk is finite and shrinks each year as limitation periods run down. Bad, because the insurer cannot offset the risk with premium from ongoing activity, and because whatever is in the book is in the book. You cannot underwrite your way out of a history of defined benefit transfer advice.
Why a sale does not remove the need
Whether you need run-off at all depends heavily on the structure of your sale, which is one of several reasons the asset sale or share sale decision matters more than most owners expect.
In a share sale, the company is sold with its history inside it. The buyer acquires the liability for past advice along with everything else, and the company's insurance arrangements typically continue or are replaced within the buyer's programme. Even here, run-off is not irrelevant: buyers frequently require the sellers to warrant the claims history, and some deals still involve run-off arrangements for specific books or periods.
In an asset sale, including the structured asset sale route to a national acquirer, the position is starker. The buyer takes the client bank, the recurring income and usually the goodwill. The selling company, and its advice history, stays with you. Your firm remains on the hook for complaints about advice it gave, and once it stops doing regulated business its annual PII will not simply renew. Run-off cover is what stands between your sale proceeds and an uninsured claim.
The regulator has been explicit that selling the client bank does not launder the liability. The FCA's published expectations of firms selling their client banks, first set out in December 2023 and updated in January 2025, state plainly that the FCA will act where client banks are sold with redress liabilities left behind, and that firms must hold adequate financial resources for potential redress. A firm that banks the sale money, cancels its PII and dissolves is exactly the pattern that guidance is aimed at. Run-off cover, alongside retained capital where needed, is how a seller demonstrates the liabilities were provided for rather than abandoned.
How the policies are structured
There is no single standard product, but most run-off arrangements fall into one of two shapes.
The first is annual renewal: you buy a twelve-month run-off policy and renew it each year for as long as you need it. This is flexible and spreads the cost, but it carries renewal risk. The insurer can decline to renew, tighten terms, raise the premium or add exclusions at each anniversary, and a firm with no ongoing income is not in a strong negotiating position. If the PII market hardens, or your book develops a claim, year four's renewal can look very different from year one's.
The second is a multi-year block policy: a single policy written for a fixed term, commonly several years, often paid as a single premium at inception. This costs more up front but buys certainty. The cover cannot be repriced or withdrawn mid-term, the cost is known on day one, and it can therefore be dealt with cleanly inside the sale negotiation as a defined number. Buyers and their lawyers tend to prefer this shape for exactly that reason: a known premium is easy to allocate; an open-ended annual commitment is not.
Within either shape, the details matter as much as the headline premium. Check the limit of indemnity and whether it is per claim or aggregate across the term. Check the excess, which insurers sometimes raise sharply for run-off. Check the exclusions, particularly for the advice types most likely to generate claims. A cheap run-off policy that excludes defined benefit transfers, where the firm has a DB transfer history, is close to worthless as protection.
What drives the cost
Nobody can give you a reliable premium without underwriting your specific firm, and any article that quotes you a fixed figure is guessing. What can be said with confidence is what moves the number, because the drivers are consistent across the market.
- Claims history. A clean record over a long period is the single strongest lever. Notified claims, open complaints and past Financial Ombudsman Service decisions all push the premium up, and can push the excess up further.
- Advice mix. Defined benefit pension transfer advice is the dominant factor for most firms. A book with meaningful DB transfer volume will pay materially more, face larger excesses, and in some cases struggle to find run-off terms at all. Other higher-risk categories, such as unregulated collective investments or non-mainstream investments, have a similar effect.
- Size and age of the book. More clients, more transactions and higher sums advised on mean more surface area for claims. The recency of the activity matters too: a firm that stopped writing higher-risk business a decade ago presents differently from one that wrote it last year.
- Term and limit. A longer policy term and a higher limit of indemnity both cost more, in fairly obvious ways. Multi-year single-premium policies are often quoted as a multiple of the expiring annual PII premium, with the multiple reflecting term and risk.
- Market conditions. PII pricing for advice firms moves in cycles. The same firm can get noticeably different terms in a soft market than a hard one, which is a reason to obtain run-off quotations early in the sale process rather than in the week before completion.
If you want a rule of thumb for budgeting before quotations arrive, think in terms of your current annual PII premium as the base unit, and expect a multi-year run-off policy to be priced as some multiple of it, higher for a firm with DB transfer exposure or claims, lower for a clean investment-and-pension book. Then get real quotations, because the range is wide and your firm sits at a specific point in it.
How long you actually need it
The honest answer is longer than most sellers would like, and the reasoning comes from limitation rules rather than insurance practice.
For a negligence claim in the courts, the basic limitation period is six years from the date the loss was suffered. But there is a second limb: three years from the date the claimant knew, or reasonably should have known, they had a claim, subject to a fifteen-year long-stop. Advice failures are often latent. A pension transfer that was unsuitable in the year it was made may only reveal its cost when the client retires. The clock, for practical purposes, can start late.
The Financial Ombudsman Service applies its own time limits, which broadly mirror the six-year and three-years-from-awareness structure, and for retail advice disputes the Ombudsman, rather than the courts, is the usual route. Again, the awareness limb is what stretches the tail: a complaint about advice given eight or ten years ago can still be in time if the client only recently became aware of the problem.
Put together, a common commercial position is that six years of run-off is the minimum credible term, because it covers the primary limitation period from cessation. Firms with long-tail exposure, DB transfers above all, often carry cover for longer, and a cautious view runs towards the fifteen-year long-stop for the residual risk. Where cover is bought annually, the practical pattern is that most firms carry it for at least six years and then take a view, year by year, on the shrinking residual tail. Buyers in share sales frequently specify a minimum run-off term in the sale agreement, and six years is a common choice precisely because it maps to limitation.
One further point sellers miss: dissolving the company does not straightforwardly end the story. A dissolved company can be restored to the register by court order, and where a firm fails with redress owed, liabilities can fall to the Financial Services Compensation Scheme. The FCA's client bank guidance exists precisely because the regulator does not regard dissolution as an exit from responsibility, and its October 2025 multi-firm review of consolidation shows the same underlying concern from the buyer side: acquisitions structured without proper regard for the resources standing behind liabilities produce poor outcomes, and the FCA is watching for them.
Negotiating who pays
Run-off cover is a real cost, incurred because of the sale, protecting a liability the sale allocates. That makes it a negotiable item, not an automatic seller expense, and how it lands depends on structure and preparation.
In an asset sale, the starting position is usually that the seller pays, because the liability stays with the selling company. But starting positions are for moving. The cost of run-off is, in substance, part of the price of the deal, and sellers can and do negotiate a contribution: a buyer funding all or part of a multi-year run-off premium at completion, a specific price adjustment recognising the cost, or the premium being treated as a completion expense before the consideration is struck. A buyer who wants your client bank cleanly, with the FCA comfortable that redress liabilities are provided for, has its own interest in the run-off being properly in place. Say so.
In a share sale, the buyer inherits the company and typically maintains cover, but sellers should read the warranties carefully. If you are warranting the completeness of the claims history and standing behind indemnities for pre-completion advice, the interaction between those obligations and the insurance is where your real exposure sits. That interaction is a subject in its own right, covered in warranties and indemnities in advice firm sales.
Whatever the structure, three practical steps strengthen your hand. Obtain run-off quotations early, so the cost is a known number during negotiation rather than a shock after heads of terms. Get your claims and complaints record documented and clean, because it is the first thing both the insurer and the buyer will ask for. And treat the run-off arrangements as part of the deal papers, agreed and evidenced at completion, not something to sort out afterwards. The wider liability and run-off hub covers the surrounding ground, including what the FCA expects to see when a client bank changes hands.
Where this leaves you
Run-off cover is the price of a clean exit from a claims-made insurance world. Plan for at least six years of it, longer if your book includes DB transfers; expect the premium to be driven by claims history, advice mix and book size rather than any flat tariff; prefer the certainty of a multi-year policy where the deal can fund it; and negotiate the cost as part of the consideration, because that is what it is. Sellers who arrive with quotations in hand and a documented claims record give the buyer one less reason to chip the price.
If you are still forming a view of what the firm itself might fetch before those costs, the free IFA valuation calculator gives you a range and explains the factors affecting it.