What is Professional Indemnity Insurance?
Professional Indemnity Insurance provides cover for potential threats such as alleged negligence or breach of duty arising from an act, error or omission in the performance of the professional services that you may provide. A Professional Indemnity policy provides protection for you and your assets against claims for financial loss, injury or damage to you and your business up to the sums insured in your policy schedule. The limits that you may need to consider range from $1,000,000 up to $20,000,000 in cover.
Who should consider Professional Indemnity Insurance?
A Professional Indemnity policy is designed for anyone who gives advice and/or services of a skilful level, according to an established discipline, to another person or business.
Professions that may require this cover include
How much do i need?
Choosing the appropriate professional indemnity insurance (PI) limit to purchase is not straightforward. There are several key factors that should be considered when deciding the limit that is right for your business. The selection of the most appropriate limit should be driven by your desire to protect your business and personal assets. All too often I see business owners purchase the minimum (PI) limit possible in order to satisfy their statutory or contractual obligations. Just because the limits have been set as a minimum requirement doesn’t necessarily mean you will not be out of pocket at the time of a claim.
Some of the key factors you may consider when reviewing or deciding your policy limit are:
Many industries such as bookkeepers, certifiers and mortgage brokers are often subject to compulsory insurance limits to support a statutory registration or accreditation. These limits can vary between states and industries.
Project Values and Types
It is a common view that a high contract value requires a high limit of insurance and a low contract value has reduced professional negligence exposure. This factor should not be used as an independent measure however. Significant professional indemnity claims can result from a low value project.
After the above points have been considered it is now time to assess the possible causes of loss, injury or damage that may give rise to a professional negligence claim.
Assessing the perceived exposure may be broken into the following 3 considerations:
Monetary loss suffered by a third party as a result of an actual or alleged breach of professional duty. Example - Financial loss due to a delayed completion of a building contract due to an actual or alleged breach of professional duty by the project manager.
The resultant damage to property could be a consequence of an actual or alleged breach of professional duty. Example – A support beam collapses in a building due to a design engineer under specifying the diameter of the beam. The collapse of the building has the potential for causing property damage to tenants of the building, neighbouring properties and public property.
Personal Injury (or Death)
Injury (or death) could result from an actual or alleged breach of professional duty of care. Example – Using the same example as above personal injury could occur due to the collapse.
A common misconception is that such risk is insured under a public liability policy. Public liability policies usually contain a specific exclusion in relation to claims arising from the provision of professional services therefore personal injury claims are a core professional indemnity exposure for many professionals.
Ability to retain risk
The extent to which you are prepared to expose your assets by either accepting higher excess or lower policy limits and your ability to control the risk or transfer liability to other parties involved should also be part of the assessment.
To the extent that any of the above content constitutes advice, it is general advice without reference to your needs or objectives and therefore cannot be relied upon. Before acting on the above information you should obtain advice specific to your needs.