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Trying to understand the ins-and-outs of professional indemnity insurance is a real challenge and many professionals struggle to wrap their heads around the intricacies.
There are varying levels and areas of cover, not to mention differences between individual policies. So finding a product that suits your business can prove to be difficult. That’s where we come in, to help untangle some of the knots and make arranging Professional Indemnity insurance a whole lot easier.
Professional Indemnity (PI) insurance^ is an important form of protection if your business provides specialist services or professional advice. It’s designed to help respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. Professional Indemnity insurance may also help with legal costs associated with responding to or managing claims covered by the policy.
It’s an unavoidable fact that all businesses face risk and as a result, all businesses need to have a plan for preparing for it. The best option would be to avoid or eliminate risk entirely but this isn’t always possible. So the only realistic approach is to minimise the likelihood or impact—also called mitigation—of the hazard1.
One of the main risks that certain businesses may need to plan for is a claim for compensation, up to and including litigation. It goes without saying that your business always acts with the best of intentions and aims for the highest ethical standards but accidents happen and, as we all know, mistakes can be all-too-easy to make.
Sometimes these mistakes can have significant impacts on your clients. Whether it’s providing bad advice, failing to meet an agreed-upon deadline, making a misdiagnosis, or forgetting to file a document, these seemingly small actions can sometimes cost a client a lot of money or have a dire impact on their health.
There are several steps you can take to proactively reduce the risk of people making mistakes in your business. For instance, training, implementing better processes and sending reminder memos. But none of these are fool proof. There’s another reliable way to help decrease the impact of a claim or litigation on your business and that’s professional indemnity insurance.
Professional Indemnity insurance works in a similar way to other third-party insurance products. If you’re involved in an incident leading to allegations of breach of a professional duty, which causes loss or damage to a client, your professional indemnity insurance can help to ensure you don’t have to pay all of the resulting compensation directly (subject to the level of cover and excess^).
Professional Indemnity insurance helps compensate the other party for loss of business or missed financial opportunities or even injuries^. These pay-outs can be substantial, reflecting the significant amount of trust clients place in many professional service providers and the impact that incorrect professional advice or service can have.
Without Professional Indemnity insurance, your business could be liable for 100% of that sum, which could mean bankruptcy or insolvency.
Not every business is likely to require professional indemnity insurance. For those that do, it can be very beneficial. Any business that provides advice or a professional service to clients could benefit from protecting themselves against potential accusations of professional negligence or malpractice.
For many occupations this decision isn’t an option, it’s a requirement that individuals hold current Professional Indemnity insurance. For example:
If your business provides advice to, makes decisions on behalf of, or deliver services to a client, you may benefit both from the peace of mind as well as the financial safety net it can provide, even if it’s not compulsory. This includes professionals such as lawyers, doctors, real estate agents, accountants, psychologists, architects and more.
It’s vital to understand what Professional Indemnity insurance typically doesn’t cover. If you or a member of your staff were to intentionally cause damage, engage in fraudulent or dishonest dealings with clients, or accidentally and—not associated with your professional service or advice—injure a member of the public or cause damage to their property, your professional indemnity insurance likely will not cover you.
The latter two—personal injury and property damage not associated with your professional service or advice—can be covered by taking out a Public Liability Insurance policy^, but often this has to be taken out separately.
It’s also important to understand that professional negligence claims are a complex process with many individual steps to be taken between initial notification and finalising the matter.
Professional Indemnity and Public Liability insurance can both help cover your business against third party claims resulting from liabilities that might result from your business activities. The main difference is that Professional Indemnity insurance covers you for the professional service you provide to clients, while Public Liability insurance provides protection for you and your business if a customer, supplier or a member of the public are injured or sustain property damage as a result of your negligent business activities.
Given that every business is unique, offering different types of services and operating in its own particular environment, it stands to reason that these kinds of factors will impact on the cost of policies.
Having a suitable level of professional indemnity insurance protects businesses, both financially and from a reputation perspective. The costs of not having suitable cover could be catastrophic. With iSelect and BizCover you can compare Professional Indemnity insurance quotes from a range of providers and select the policy which suits you.
First things first, leave the hard work to us. iSelect and BizCover will take the pain out of finding business insurance. Using our comparison service, it’s simple to check professional indemnity policies from a range of insurers. Get started online today, or call us 13 19 20.
^Please note that all insurance is subject to the terms and conditions set out in the policy wording or Product Disclosure Statement. The information set out above is general only and should not be relied upon as advice.
Last updated: 27/08/2020