Why do you need professional indemnity cover?

Why do you need professional indemnity cover?

If you provide services or advice to people as part of your job, it’s fair to say that you always do your best to make sure that nothing goes wrong. Given your qualifications and experience, you make sure that your services are first class and your advice is exemplary.

Unfortunately, despite all the care in the world, things can go wrong, or clients can be unhappy, resulting in a claim of professional negligence and legal action. These claims can be made against you personally or your business. Regardless, the legal defence costs can run into the hundreds of thousands of dollars, in addition to any settlement or court judgement. Without appropriate insurance cover, claims of professional negligence can cause financial hardship and damage the reputation of individuals and businesses, which is why you need Professional Indemnity Insurance.

What is Professional Indemnity Insurance?

This is a special type of insurance for professionals and the businesses who provide advice or services to customers, such as real estate agents, accountants and builders. This insurance policy protects against both actual or alleged claims of financial loss, property damage and personal injury connected with your personal services or advice.

The insurance pays both legal defence costs and any subsequent court award or settlement. It can also pay for the costs of hiring a public relations expert to protect your reputation.

What does Professional Indemnity Insurance not cover?

This insurance policy does not cover risks including breaches of directors’ duties (to your own business), which are covered under a Management Liability policy, Public & Products Liability or Workers’ Compensation.

Who can benefit from Professional Indemnity Insurance?

There are a whole host of professionals who can benefit from this type of insurance, whether a sole trader or business owner. A professional can really be anyone that provides advice or a service, including unpaid advice. Professionals include (this list is not exhaustive):

Architects
Accountants
IT professionals
Engineers
Financial advisers
Mortgage brokers
Health and Allied professionals
Real estate agents
Veterinarians
Beauty therapists
Psychologists
Marketing consultants
Swimming pool inspectors
Travel agents
Health and safety consultants
HR professionals
Interior designers

To decide if this type of insurance can be of benefit to you, talk to an insurance specialist today and find your local adviser.

General Advice Warning

The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it.

Professional Indemnity Insurance

Professional Indemnity (PI) Insurance isn’t just limited to typical ‘professions’ such as accountants, engineers, lawyers, doctors and architects. Essentially, anybody providing advice or consultancy services for a fee has an exposure that needs to be considered.

Professional Indemnity Insurance

What is Professional Indemnity Insurance?

If you or your business provide professional advice or services, then you’re likely to need Professional Indemnity (PI) Insurance.

This insurance provides and pays your legal defence costs in the event that a customer complains that they followed negligent advice and suffered a financial loss – even if there’s no real basis for the complaint. If there was negligence, PI Insurance will also pay any damages awarded by the court.

Without Professional Indemnity Insurance, you or your business could be faced with having to organise your own legal defence, and pay potentially large legal bills as well as damages awarded by the court. The average claim amount is over $100,000 for legal costs, expert reports, and damages, so it can be a large amount to have to find quickly.

Typical professionals that purchase PI Insurance include:

real estate agents
construction consultants
healthcare or allied health
IT consultants
lawyers
doctors.

Why is Professional Indemnity Insurance important?

Professional Indemnity Insurance is mandatory for many professions and must be in place before starting a business. It’s recommended that you check with your association or insurance adviser to find out if PI cover is compulsory, and the sum insured required.

For other professionals, although this insurance cover may not be compulsory, it’s an easy way to protect yourself and your business from large financial losses. Even with the best training or risk management, people still make mistakes, contractors can provide incorrect specifications, and advice can be misunderstood.

It’s worth noting that the cover provided by Professional Indemnity is different from Public Liability Insurance which covers defence costs and any damages relating to personal injury caused to people or damage to their property. This is not the same as financial loss caused by an architect placing walls in the wrong location on plans or an IT professional recommending the wrong software.

What does Professional Indemnity Insurance cover?

The exact cover will depend on your occupation and scope of activities. Broadly speaking, Professional Indemnity Insurance covers any negligent act, error or omission relating to:

misleading, inaccurate or negligent advice; breach of confidentiality or privacy
breach of consumer, competition, and fair trading laws
loss of documents
infringement of intellectual property rights
malpractice, misdiagnosis, failing to order the appropriate tests, failure to treat
defamation, libel or slander, including costs of disciplinary proceeding costs, claim investigation and expert reports
public relations costs
legal defence costs
payment of damages.

As you can see, Professional Indemnity is a complex insurance with a wide range of cover options. We’ll work with you to understand your business, provide options to manage your professional risks, and recommend insurance cover.

Frequently Asked Questions

Who needs professional indemnity insurance?

Anyone who is specially trained, provides advice or service, and is a member of an association or profession can purchase this type of cover. Real estate agents, construction consultants, engineers, healthcare or allied health professionals, designers, lawyers, IT consultants and doctors all need Professional Indemnity Insurance.

In some workplaces or industries, it is mandatory to have this cover. Even if not compulsory, this insurance is important to protect you and the business from having to pay significant legal costs, as well as damages, if found to be at fault.

How much does professional indemnity insurance cost?

Professional Indemnity covers you or your business for legal costs and any damages if there is an actual or alleged act, error or omission that causes a financial loss to a client or customer.

Premiums are typically based on:

Your industry – for example, construction, IT, or medical, some are at higher risk than others.
The scope of your business activities – for example, whether you’re a fire engineer or an IT engineer, the turnover/ revenue and number of employees or contractors.
Prior claims experience – the more claims or lawsuits, the higher your premium (and excess) are likely to be.

● What is the minimum professional indemnity insurance?

The amount of Professional Indemnity cover you need depends on:

your occupation and potential for financial loss to the customer if there was negligent advice
any mandatory requirements of your association
the level of cover you choose, based on your level of risk, as well as the cost of the insurance.

Because different professions present varying levels of complexity and risk, we recommend talking with your insurance adviser – they are professionals who can work to understand your business and provide you with options to choose from.