You may have heard of Professional Indemnity Insurance, necessarily know what it protects against or who should have this insurance, Basically, professional indemnity insurance safeguards individuals and businesses that provide professional advice or services that may result in financial loss to a client. For example, if an engineer provides incorrect drawings to a builder and the foundations start cracking, when the builder is required to pay, professional indemnity insurance can protect them. This type of insurance provides different cover to public liability and products liability insurance. Unfortunately, despite all the care in the world, some things can go wrong, resulting in complaints and potentially claims of professional negligence.

The latest APRA report showed that $1.58 Billion in claims were paid, with the average professional indemnity claim is about $70,000, with costs in the last year approximately 12% higher than last year. Professional Indemnity Insurance provides a financial safeguard against potentially expensive legal defence costs and any court awarded damages. Professionals are defined as not only people with a degree, such as engineers and doctors. Professionals include individuals or businesses, such as manufacturers that provide product advice, allied health workers, such as physio’s building contractors, transportation company’s etc. So, a professional can be anyone that provides advice, that if people act on could cause them financial loss.

Professional Indemnity insurance pays legal defence costs in advance and any damages awarded by the courts. Without appropriate insurance cover, claims of professional negligence can cause serious financial damage and impact the reputation of individuals and businesses.

What is Professional Indemnity Insurance?

If a client complains that you or your business has made a mistake in the advice or service you provided and it results in a financial loss, the client may seek to recover their loss through legal action. Regardless of whether the alleged mistake is found to have occurred or not, you will need to engage experts and lawyers to defend your business and reputation. 

As mentioned above, the average cost of a professional indemnity claim is $70,000 and is likely to be higher in future years. Therefore, professional indemnity insurance is essential to transfer this substantial financial risk to an insurance company, which will also assist by engaging lawyers and paying them in advance to protect you and your business and reputation. 

Who Needs Professional Indemnity?

The potential list of occupations is wide-ranging, including consultants, bookkeepers, project managers, conference managers, electricians, funeral directors, HR and WHS consultants, logistic companies, media and IT consultants. Some professionals are legally required to have this insurance, including lawyers, insurance advisers and brokers, accountants, engineers, and architects. This is relevant if you're a sole trader, contractor or own and operate a business. 

A general rule of thumb for deciding whether you need professional indemnity is: 

Is your work skilled? If so, do you require a licence or certificate to operate? Do you or your employees need vocational training or formal education? Do you belong to an industry organisation that regulates the industry or sector and sets standards? 

If you answered yes to one or more of these, you might need professional indemnity insurance for the advice or services you provide. Just as you have invested in yourself and the business, it’s worthwhile investing in professional indemnity insurance. Your professional indemnity insurance will give access to specialist lawyers and legal defence funds. You can then manage your business without the ongoing distraction of litigations which usually takes between 6 – 18 months to finalise.

Why is Professional Indemnity Insurance Important?

Protecting your business is a critical aspect of managing a business smoothly, and on the chance business operations don’t go according to plan, professional indemnity insurance is a key support to help protect you and your business from potentially large legal bills and damages. Protecting yourself from financial risks specific to your business and industry, whether they are false allegations or mistakes clients may have contributed to, Professional Indemnity can help defend your business, assets and reputation.

Suppose you or your business haven’t had the bad luck of experiencing a professional indemnity complaint before. In that case, it's understandable that you may be unaware of the time, effort and legal costs. Not only can they have a significant impact on your business cash flow and profits, but they will also disrupt your business operations and your focus on managing the business at a critical time. However, with professional indemnity in your arsenal, you can be covered for unexpected costs like loss investigations, specialists, lawyers and public relations advisers. 

While risk management can identify and manage the risks associated with your business or specialty, it won’t pay the legal bills and any damages if awarded by a court. After all, no one can predict whether a mistake or incorrect advice can occur. Protecting you and your business by having the right professional indemnity insurance in place is one of the most straightforward precautions you can take to manage this financial risk and ensure peace of mind.

Why You Need Professional Indemnity Insurance

If you’re a business owner, you’re likely to wear many hats and be short on time. A late night call from a client, maybe your staff miss a key item or there’s a misunderstanding with your client, any of which could lead to errors in the service or advice you provide.

Professional indemnity insurance will provide you with cover for any alleged or actual professional act, error or omission, whether it's found to be due to your fault or not. This insurance will pay legal defence costs, specialists, and investigation fees, as well as public relations advisers, which can quickly add up to tens of thousands of dollars.

Without professional indemnity insurance, your business is left vulnerable to complaints of negligence if they were to occur, requiring you to manage the dispute or legal action and pay all the legal costs from your pocket. In addition to being expensive legal action is also stressful and takes time to resolve, taking you and key staff away from focusing on the business. Your business reputation may also be damaged and need extra attention and work to avoid long-lasting damage and restore your brand's name. With Professional Indemnity Insurance, you can ensure that assistance is at hand to minimise potential brand and reputational damage. 

Besides the potential for large financial losses, reputation is another significant factor that makes Professional Indemnity Insurance crucial for businesses. While it can be overlooked at times, your business's reputation is fragile and can result in long-term damage to your business. 

Who Does Professional Indemnity Insurance Cover?

Professional indemnity insurance covers you, directors, managers, and employees. The policy will also cover the business for mistakes made by contractors. It should be noted that the contractor should have their own professional indemnity insurance if they provide advice. When it's your or your business's role to give advice, professional indemnity insurance will provide peace of mind.

What Does Professional Indemnity Insurance Cover? 

If you’re considering taking our professional indemnity insurance, you’ll likely want to know the extent of your cover. Besides assisting to protect your business's reputation and pay legal costs associated with defending you against the allegation, professional indemnity insurance typically will cover you for the following types of issues: 

• Breach of your duty as a professional
• Advancement of your legal costs before finalisation of the claim
• Defamation
• Loss or damage to important client documents
• Breach of intellectual property
• A breach of the Australian Consumer Law or State or Territory Fair Trading laws 
• Breach of Privacy & Confidentiality, including notifying individuals and companies of the breach 
• Public relation costs, including loss mitigation expenses; also
• Claim investigation costs- including the costs of investigating, defending and settling a claim

How Insurance Advisernet Can Help

Accidental breaches of client confidentiality or privacy and mistakes or incorrect advice are all unfortunate but possible despite any precautions you have in place.  Some clients can also try and hold you responsible for their errors.

Insurers paid over $1.58 billion in claims (2019), with the average professional indemnity claim about $70,000. Investing in professional indemnity insurance can help you relieve some of the stress of this business risk. While it would be ideal for no complaints to be made or mistakes to occur, they do, so having insurance to manage this risk is an easy solution.

To ensure the financial safety and reputation of your businesses, learn more about how Insurance Advisernet can assist you with Professional Indemnity Insurance by contacting us today. No matter the size of your business, our team of professionals specialise in various insurances that will be able to assist your specific needs. To see the scope of services we offer, visit our website where you can see why our clients choose us.

Important Information 

This communication, including any weblinks or attachments, is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation, or needs have not been taken into account. This communication is not intended to constitute personal advice. 

We strongly recommend that you consider the suitability of this information in respect of your own personal objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.