Who Needs Professional Indemnity Insurance?
Professionals in various fields may be legally responsible pay compensation if they provide poor advice, make errors, overlook details, or act negligently that cause financial harm to a third party. Even honest mistakes or oversights could lead to legal action. Sometimes, the threat of a costly court case is enough to disrupt a small business owners’ momentum and finances.
Professional indemnity insurance may protect against the financial impact of accusations of negligence and professional errors.
What Is Professional Indemnity Insurance?
Professional indemnity insurance is a type of insurance coverage meant for professionals that may face claims of negligence, breach of duty, or poor advice. It is different from public liability insurance, which covers personal injury or property damage claims to the general public.
These policies may pay negligence claims if the case gets settled before going to court or if the court finds the professional liable for the damages. Also, the insurer may cover the cost of the legal defense, which can be quite expensive even if the case gets dismissed.
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How Indemnity Insurance Protects Professionals
Data from the Australian Prudential Regulation Authority (APRA) suggests that professional indemnity insurance claims are quite common. According to the National Claims and Policies Database, in 2020, insurers paid 18,143 professional indemnity claims at a value totalling $977 million. This is the amount professionals would have had to pay out of pocket without coverage. The total does not include legal costs, which are significant in such cases.
Professional indemnity insurance serves as a vital risk management tool for those who want to avoid the negative financial and professional impact of a professional services task gone wrong.
Types of Businesses Requiring Professional Indemnity Insurance
Indemnity insurance is not necessary for every occupation. However, it is recommended for professional services firms that charge a fee for their advice.
Occupations requiring indemnity coverage are those involving providing professional services or advice that could cause financial damage if there are mistakes or omissions.
Some of the industries requiring professional indemnity insurance include:
- Consultants
- Architects
- Engineers
- Accountants
- IT professionals
- Solicitors
- Real estate professionals
- Financial advisors
In each of these professions, the insurance may protect against the financial impact of errors, omissions, or poor advice.
Second, while solicitors may be able to build a legal defence against negligence claims, their services often come at a high cost. Indemnity insurance may cover these fees.
Professionals may keep their reputation intact by settling negligence claims and letting clients know they have insurance to cover any costly errors.
Finally, indemnity insurance provides peace of mind. The policy may protect against the financial consequences of mistakes that occur during business operations.
Factors to Consider When Selecting Professional Indemnity Insurance
Professionals needing insurance coverage need to consider several factors when shopping for the most suitable policy for their needs.
The first is the coverage amount. Keep in mind that the policy needs to pay legal fees and claims. For example, the necessary coverage amount for an architect designing multimillion-dollar buildings will be more than for an accountant working with small businesses and freelance workers.
Each policy may have exclusions, which are situations that the insurer will not cover. While errors and oversights may be covered, willful acts of fraud or other forms of dishonesty will not qualify for coverage.
These exclusions are obvious, but others may be more subtle. Some insurers may exclude claims relating to areas outside of your primary practice or areas of your job that are higher risk than others. You should review these on a case-by-case basis.
Like many forms of insurance, you typically renew professional indemnity policies annually. You should review the insurer’s policies relating to renewal and repricing your coverage for renewal.
Finally, you may prefer an insurer with a straightforward claims process that allows you to quickly file claims and share information online or over the phone.
If you are seeking professional indemnity insurance, contact us to speak to one of our brokers and see if we can help you find suitable cover for your business operations.