Merging a Practice
When merging a practice contact the LPLC about premiums
The question of how the LPLC's system of premium risk rating works when firms merge or disband is something firms should consider when undergoing these changes. While we regularly receive questions about this issue, they often only emerge at renewal time when a firm suddenly realises it has acquired a claims history it had not anticipated and an increased premium as a consequence.
The way the LPLC deals with these issues is as follows:
1. When Firm A merges with Firm B, Firm B becomes a "prior practice" of Firm A under the terms of Firm A's professional indemnity insurance policy.
Future claims against Firm B (or the former principals of Firm B) will then be covered under Firm A's policy. For risk rating (and premium calculation) purposes, Firm B's claims history will be combined with Firm A's claims history. This means that Firm B's claim profile will affect Firm A's future risk rating.
2. The practice of Firm A ceases and Firm A is disbanded, even though some or all partners of Firm A join Firm B and/or Firm C. Firm B and Firm C will be risk rated without regard to the premium or claims history of Firm A.
3. Some of the partners of Firm A join Firm B but the practice of Firm A is merged with Firm C.
Firm B will be risk rated without regard to the premium or claims history of Firm A but Firm C will be risk rated on the combined premium contributions for the risk rating period (currently 6.5 years) of Firm A and Firm C, as well as the combined claims payouts or reserves for that period.
In determining which of the above three circumstances has occurred, the LPLC will have regard to the following factors:
- any relevant agreement between Firms A and B (and A and C, if applicable);
- how the arrangement was represented externally by the firms;
- how the arrangement was characterised for tax purposes;
- where the partners and staff of Firm A went under the arrangement;
- which firm occupied the premises of Firm A after the arrangement;
- which firm collected the pre-arrangement debts of Firm A;
- whether Firm B (or Firm C) assumed other assets or liabilities of Firm A; and
- any other factor which the LPLC considers relevant.
The LPLC recommends that if your firm is considering merging with another, you should seek permission from that firm to obtain a copy of that firm's premium and claims history from us.
Key contacts
Bernie Mallia
+61 3 9672 3800
bernie@lplc.com.au
Terri Twining
+61 3 9672 3800
terri@lplc.com.au