Professional Indemnity Insurance: What’s Covered & Is It Suitable For Your Business?

Let iSelect make it simpler. In this article, we’ll walk you through what professional indemnity insurance is, who may need it, and what to look for in a policy.
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Understanding professional indemnity insurance can be a real challenge for many professionals to wrap their heads around. With varying levels and areas of cover and potential differences between policies, finding a product that meets your needs can be difficult.

Prior to making a decision on a level of cover, ensure you review the Product Disclosure Statement for details of policy inclusions, limitations and exclusions.

What is professional indemnity insurance?

Professional Indemnity insurance can provide some protection for your business against certain claims for damages resulting from your negligent act, error, or omission while you're working for a client.

Additionally, it can also provide cover for some claims relating to breaches of a professional duty owed to a client, including, incorrect advice or other mistakes relating to a customer’s account

Professional indemnity and risk management in your business

All businesses face risk, and all businesses need to plan accordingly. While it’s ideal to avoid or eliminate risk entirely, often the only realistic option that’s open to management is minimising the severity of likelihood or impact – also called mitigation – of the hazard1.

One such risk that many businesses need to plan for, is a claim for compensation (up to and including litigation). Your business could always act with the best intentions and the highest ethical standards, but accidents happen and mistakes are simple to make.

Sometimes these mistakes can have significant impacts on your clients. Whether it’s providing bad advice, failing to hit a required deadline, making a misdiagnosis, or forgetting to file a document, these small actions can sometimes cost a client a lot of money, or impact on their health.

Unfortunately, there’s no removing this risk entirely. No matter how good you and your team are at what you do, there’s always the chance – no matter how small – that you or someone in your business will make a mistake. In short, claims and litigation are a risk that simply can’t be eliminated completely.

Protecting your business’ assets with suitable insurance

While there are several steps you can take to proactively reduce risk in your business – training, better processes, and reminder memos – there’s another reliable way to decrease the impact of a claim or litigation on your business: professional indemnity insurance.

Professional indemnity insurance functions in a similar way to other third-party insurance products – should you be involved in an incident which leads to allegations of breach of a professional duty, and which causes loss or damage to a client, your professional indemnity insurance will ensure that you don’t have to pay all of the resulting compensation directly (subject to the level of cover and excess*).

Professional indemnity insurance compensates the other party, for example, for loss of business or missed financial opportunities*.These payouts can be substantial, potentially running into the millions of dollars2 in order to reflect the significant amount of trust placed by clients in many professional service providers, and the impact incorrect professional advice or service can have.

Without professional indemnity insurance, your business is liable for 100% of that sum, and could mean facing bankruptcy or insolvency.

What kind of businesses may require professional indemnity insurance?

While not every business is likely to need professional indemnity insurance, it’s very important for those that do. Any business that provides advice or a professional service to a client can consider protecting themselves from potential accusations of professional negligence or malpractice. For example, a financial planner would generally need professional indemnity insurance.

For many occupations, it’s a requirement that individuals hold current professional indemnity insurance. For example:

  • The Tax Practitioners Board (TPB) has made it a mandatory requirement for registered tax agents3
  • The Nursing and Midwifery Board of Australia requires all enrolled nurses, registered nurses and midwives to hold a minimum standard of professional indemnity insurance4
  • All CPA Australia Public Practice Certificate holders are required to hold professional indemnity insurance as a condition of membership5

Fundamentally, if your business is providing advice to, making decisions for, or delivering services to a client, you’re likely to need professional indemnity insurance.

professional indemnity insurance australia

What’s typically included and excluded in a standard policy?

It’s important to understand what professional indemnity insurance doesn’t cover. Should you or a member of your staff cause intentional damage, engage in fraudulent or dishonest dealings with clients, or accidentally and - unassociated with your professional service or advice - injure a member of the public or cause damage to their property, you will not be covered under your professional indemnity insurance.

The latter two – personal injury and property damage not associated with your professional service or advice – can be covered under a public liability insurance policy, but this must be taken out separately.

It’s also vital to note that professional negligence claims are a complex process with many individual steps to be taken between initial notification, and finalising the matter.

Compare professional indemnity insurance policies today

With iSelect and BizCover, we take the hard work out of finding business insurance. Using BizCover’s comparison service, you can easily compare professional indemnity policies from a range of insurers to find a policy for your business. Get started online today, or call 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.