Professional Indemnity Insurance should be considered by any business or sole trader that is providing a professional service. A professional service is more commonly referred to as advice for a fee, design or formula, but can also be suitable for professionals who provide advice or services of a skillful character according to an established discipline.
Many businesses will only be requested to have Public Liability Insurance, when in actual fact their main exposure sits with Professional Indemnity. Professional Indemnity can also be referred to as Professional Liability and in some cases Public Indemnity.
Professional Indemnity policies are issued on a claims made basis, which means a policy needs to be in force when a claim is made, not when the service was performed. It is important to remember that whenever changing or cancelling a Professional Indemnity policy, run off cover is considered for the policy and policy limits. Claims can still be brought against a business or professional for many years after the work was performed, so it is important to always maintain a suitable retrospective cover for prior work undertaken.
Professional Indemnity Insurance is often considered by Accountants, Lawyers, Architects, Engineers, Marketing Consultants, HR Consultants and many more.
Professional Indemnity policies provide cover for legal judgements made against a business (including costs and expenses), if responsible for causing a financial loss to a third party, resulting from an act, error or omission by a business or individual. As our world evolves and legislation becomes more onerous, it isn’t uncommon for a business to make an error of judgement, or even unintentionally breach privacy or confidentiality. As a business grows, claims can arise from the increased volume of work produced and additional staff that may also make mistakes. Regardless of whether a business has the best risk management or most experienced employees, mistakes will be made.
The most common claims arise from:
- Failure to perform service on time or correctly, which costs the client money or harms their reputation; and
- Loss to the client of their future contracts.
Professional Indemnity is often utilised for defence costs and may not always be required to award damages. Having the ability to access professional legal support can provide peace of mind and financial security. Protecting a businesses or individuals reputation is often the most important factor in any dispute.
Sole traders bare the same risks as a company. Unlike other policies available, Professional Indemnity is based on what professional services are provided, not how the company is structured.
It is important for sole traders to also disclose other professional services they may be outsourcing to subcontractors, as they may be brought into these claims as well.
In most cases, contractors are required to organise Professional Indemnity Insurance. Where this becomes unclear is when contractors are working predominantly for another business and may meet the definition of an employee. In cases like this, contractors can be noted on their Principal’s insurance policy. If a contractor is performing professional services for other clients, they may want to consider a Professional Indemnity policy for this exposure. It is likely that their Principal’s insurance policy will only indemnify them when working for the Principal.
Professional Indemnity costs vary substantially between industry professionals. Like any insurance policy, the insurance premium is calculated based on the answers to an insurance companies underwriting criteria. Questions that determine the premium include the occupation (professional services performed), total fee income and sometimes the qualifications and experience held by key staff, such as managers, directors or decision makers.
Professional Indemnity is a specialised type of insurance and often requires manual approval by an Insurance Underwriter. Premiums can often vary between similar businesses, as claims and risk management procedures can determine how an underwriter will price the risk.
Professional Indemnity premiums are generally more competitive for professionals such as Accountants, I.T Professionals, Real Estate Agents, Mortgage Brokers, and can be expensive for professionals such as Engineers, Financial Planners, Insurance Brokers and Healthcare.
The limit of Professional Indemnity insurance required is often governed by the those who are requesting proof of insurance, such as principal contractors, associations or licensing bodies. It is common for higher risk industries to hold limits of $5,000,000 or $10,000,000 any one loss, where as lower risk industries may have $1,000,000 or $2,000,000 any one loss. As a starting point, we don't recommend considering anything less than $1,000,000 for any industry. Always seek advice from your Insurance Advisor whilst also factoring in your contractual requirements.
Hunter Broking Group is renown for being able to assist with complex risks. Our difference in the market is being able to provide thorough and detailed advice whilst maintaining a personable and reliable relationship. Professional Indemnity insurance is a policy we deal with on a regular basis, making up 11.4% of our portfolio. Dealing with Professional Indemnity on a regular basis allows us to understand the ever-changing terms and conditions and industry requirements. Feel free to call us for a discussion to understand how we would structure your policy or which insurance companies we feel will be more appropriate for your industry.