What is Professional Indemnity Insurance?

How does Professional Indemnity Insurance work?

Professional Indemnity insurance is a type of business insurance. It’s designed to respond to claims against your business for losses as a result of actual or alleged negligent acts of omission in the provision of professional service or advice.

How could it protect my business?

Professional Indemnity may be able to help cover your legal costs if a client claims you gave them negligent advice.

It also may provide protection if a customer claims losses as a result of your services.

For instance, if an accountant does not lodge a client’s returns correctly, the client could incur fines or financial losses.

The client might then take legal action against the accountant. And in this case, Professional Indemnity insurance might be able to help cover the accountant’s legal costs.

What expenses can it cover?

Insurers can differ in terms and wording of their policies and what kind of expenses those policies cover. However, some of the costs these policies might help cover include:

• Payment of compensation as a result of a claim, including but not limited to court awarded damages.
• Reasonable legal costs incurred in defending or responding to the claim.
• Public relations expenses.
• The costs involved with investigating a claim.
• Expenses incurred as a result of disciplinary proceedings.

It may also be a good idea to go over the policy’s terms and conditions before committing to anything as it could give you a clear overview of typical inclusions and exclusions.

What doesn’t it typically cover?

Professional Indemnity is quite specific in what it can and cannot cover. The contingencies it wouldn’t cover may include:

• Fraud If losses occur because the insured party acted dishonestly or illegally (i.e. stealing), a Professional Indemnity policy generally won’t cover the costs resulting from this.
• Accidental injury Unless a client is injured due to a breach of your professional duty, Professional Indemnity Insurance generally won’t cover the associated legal costs. Typically, such costs are covered by Public Liability Insurance instead.
• Property damage Professional Indemnity Insurance isn’t often used for allegations of property damage either. Again, this may be something better addressed by Public Liability insurance.

Who might find it relevant?

Business owners and professionals alike may wish to consider Professional Indemnity insurance. It can be particularly relevant to those who make an income giving advice or providing services.

This may include professions such as:

• Architects and draftsmen
• Nurses
• IT professionals
• Lawyers
• Dieticians
• Consultants
• Engineers
• Finance and mortgage brokers
• Psychologists
• Accountants and tax agents

Some businesses may also require their employees or contractors to hold Professional Indemnity Insurance as a prerequisite of their employment.

What might be the benefits of Professional Indemnity?

Considering how costly a legal dispute can be – not to mention the costs of paying damages – Professional Indemnity Insurance may help protect both you and your business from dire financial consequences.

But there are also other consequences to consider too: namely to your reputation.

Allegations of negligence can hurt the image of any business. But Professional Indemnity Insurance may give you the funds you need to dispute these allegations in court and preserve your reputation.

You may also use these funds for public relations expenses. This might include the costs of hiring spokespeople or social media campaigns to respond to the allegations.

Doing so may also help maintain your professional image, smoothing over the allegations so they don’t affect your relationship with other clients.

What can it cost?

The cost of Professional Indemnity insurance can vary depending on a number of factors:

• Level of cover

  Generally speaking, a bigger cover amount can result in higher regular repayments – otherwise known as premiums.

• The Type of Business

  In some cases, the type of business and services offered can impact the premium paid.

• Business revenue

  Revenue typically indicates how much work a business is getting. And with more work, there can be a greater risk of a client taking legal action against you for a perceived mistake. This risk can translate to higher premiums.

• Number of employees

  Like business revenue, a larger number of employees can correlate with higher premium costs. This is because it also indicates a larger volume of work and a higher risk of a claim against your business.

• Claims history

  If either you or your business have made a claim on Professional Indemnity cover before, this can also result in higher premiums.

• The people being covered

  For business owners, this might include their employees. If they have a claims history, this could also impact the price of the premiums.

The cost of Professional Indemnity insurance can also vary from lender to lender, so you might consider comparing different policies to find a suitable policy for your budget.

Where can I compare policies?

Fortunately, iSelect has partnered with Bizcover to make finding Professional Indemnity and business insurance easy. You can click here to start comparing a range of policies* today!

Last updated: 27/04/2022