Professional Indemnity Insurance in Australia

Does your business rely on providing a professional service or advice? If so, there's always the chance of human error and this can leave you liable if something goes wrong.

What is professional indemnity insurance?

Professional indemnity (also known as personal indemnity insurance, or PII) is designed to cover the potential costs of unforeseen mistakes for both self-employed workers and businesses across many different industries.

For example: The legal fees and settlement costs to a client if you provide incorrect advice.

If you are ready to speak with a consultant about different business insurance options available, simply enter your details in the form. Keep reading if you want to learn more about the different types of cover available.

Some quick tips when getting a quote

• How much does professional indemnity insurance cost?

  It could cost $50 a month in some cases, $300 in others.

  Professional indemnity insurance is not one-size-fits-all. The cost for cover can vary dramatically depending on the insured’s cover needs. For example in our 2018 research we found that the average monthly cost for a sole trader tax agent was $49.76. This amount however could change if there was a different industry and size chosen.

  Key factors that will affect your quote

  When negotiating a competitive premium, the following factors are taken into consideration:

  • Number of staff employed by company and annual turnover. Sole traders or companies with say 15 employees won't require the same level of cover as large-scale organisation.
  • Types of clients that company/professional services. Professionals that work on large-scale,. multi-million dollar projects will require a higher level of cover than smaller firms.
  • Industry. Industries like construction carry higher risks and make more claims than other industries and this affects the premium that can be offered to clients.
  • The specific business activities and risks. Even within the same industry, different businesses or independent contractors will have a specific niche or risk associated. A full assessment of your business activities is recommended to ensure the most appropriate cover.
  • Policy inclusions and exclusions. Obviously more comprehensive protection packages with increased levels of cover will cost more than more basic policies.

  Some additional factors you might not realise

  • Previous claims history. If no claims have been made against a client then a lower premium can be arranged.
  • The amount of excess your willing to pay in the event that a claim is made. A higher excess can enable you to pay a lower premium. This does mean more comes out of your pocket during claim time.
  • The statutory requirements for each industry. Some industries require a minimum PI insurance coverage is usually $1,000,000. The higher the cover you require, the more expensive your premium will be.
  • The location of the business. Different states have different stamp duty amounts that affect the premium and particular locations are considered higher risk due to the history of claims made.

• Should I just compare price

  Don't just compare on price. Professionals should be on the look out for insurers who:

  • Understand their particular industry and manage policies of other similar businesses
  • Can produce evidence or reviews of favourable outcomes for clients when claims are made
  • Are approved by the governing body and membership association of your industry
  • Have clear policy guidelines regarding inclusions and exclusions and communicate them to you so you know exactly where you stand
  • Take a personal approach and assess your business specifically to identify the proposed risks in order to assign adequate cover.

  It is important to get a number of quotes and talk to a variety of insurers before committing to any particular policy.

Want to know more about how professional indemnity insurance works?

What's covered (and what's not)

Professional indemnity is designed to cover the policyholder for any third party damage that may be incurred if a client files a claim. Any ensuing compensation that may be required to be paid to the client from the individual or business is also covered.

Some policies will offer cover for claims from clients for financial loss, bodily harm or damage to property due to errors in the provision of the service. An example could be a medical professional providing incorrect advice and then having to cover the clients subsequent medical expenses.

Detailed list of examples

• Covered

  Typical civil liabilities covered under a policy include:

  • Breach of duty. Indemnifies the insured for claims arising out of breach of duties including confidentiality, privacy or fiduciary duty
  • Consumer protection liability. Claims for compensation resulting from violation of statutory duty
  • Contractual liability. Claims breach of contractual agreement that can be enforced in court
  • Breach of Competition and Consumer Act and Fair Trading Acts. Indemnifies policyholder for claims arising for breach of Competition and Consumer Act and Fair Trading Acts (Australia and New Zealand)
  • Intellectual property. Claims made for the infringement of the use of intellectual property. Most policies will require for the act to be unintentional and for the purpose of the provision of the service
  • Unintentional defamation. Unintentional publication of words believed to be defamatory of the client if the insured made the comments innocently
  • Contractors or consultants. Liability arising from services provided by contractors or consultants. Indemnity will only provide cover for the policyholder and will not extend to the contractors and/or consultants that have provided the service
  • Libel or slander. Liability arising from libel or slander by the insured to the client provided that it was committed during the provision of their professional service and that it was unintentional
  • Loss of documents. Loss or damage to the clients documents during the provision of the insured’s service
  • Misleading and deceptive conduct. Claims arising where the policyholder has engaged in conduct that is misleading or deceptive in the provision of their service as outlined under the ASIC Act 2001
  • Compensation for court appearance. In the event that the policyholder’s legal advisers require the principal or employee of the policyholder’s business to appear in court, the policyholder will be provided with compensation equal to their daily salary to a maximum amount
  • Claims investigations costs. Compensation for costs incurred to investigate claims paid in addition to the maximum limit provided under the policy for Australian and New Zealand jurisdictions
  • Dishonesty of employees. Policyholder will be compensated for liability in respect of claims made that were the result of dishonest, fraudulent, criminal or malicious acts or omission by an employee of the insured during the provision of their service
  • Inquiry costs. Compensation for costs arising out of inquiries into the insured’s liability
  • Joint venture liability. Compensation arising from the insured's participation in any joint-venture related to their professional service
  • Legal consultation costs. Compensation for costs incurred from legal consultation to the policyholder in the event of a claim
  • Public relations expenses. Indemnifies the policyholder for adverse public relations expenses that arise during the policy period
  • Spouse liability. In the event that a claim is made against the policyholders spouse, the claim will be treated as the liability of the insured’s
  • Extension of claim period. In the event that a claim is made against the insured up to a specified number of days following the expiry of the policy, the insured will still remain covered under the policy

  The conditions of the cover features listed above will each have their own set of conditions for compensation to be paid which may vary greatly between policies. It is crucial that anyone looking to take out cover is absolutely clear on the requirements for a claim to be paid and the maximum compensation that they stand to receive under claim.

• Not covered

  Each policy will have its own set of exclusions whereby the insurer will not be liable to pay compensation to the insured in the event that a claim is made

  Some typical exclusions listed on professional indemnity policies include:

  • Claims arising following cancellation of policy. It is not unusual for many claims to be made against businesses and/or professionals a significant period of time following the provision of the service and even after they have ceased business. As many professional indemnity policies expire when they are cancelled, the policy owner may not be covered for claims made against them even if they have already retired. This can be avoided by taking out a policy with a “run off” extension discuss in the section below
  • Claims arising following switching insurance brands. If the policyholder is covered by a policy provided by their employer and they have changed employers and switched insurance brands, it is unlikely that they will be covered for claims made for the business they provided with their previous employer. It is also unlikely that any compensation will be provided as the previous cover is likely to have expired. In this event it is worth the worker checking with their new insurer what provisions they have for previous claims
  • Known circumstances. Generally, the insurer will not receive compensation for events that they were aware of prior to the commencement of the policy period
  • Professional fees.Compensation will not be paid for any claim arising from the insured for claims by clients for fees or charges for their professional service. No refund of fees or charges from the insured will be paid by the insurer

  • Foreign jurisdiction: You will not be covered for claims made outside the insurance company’s jurisdiction

  • Asbestos. Claims or legal costs that arise in respect of asbestos
  • Radioactivity and pollution. Claims that are attributable to or are the consequence of radioactivity or pollution
  • Dishonest, fraudulent or criminal acts. Claims arising where the policyholder has intentionally engaged in dishonest, fraudulent or criminal acts
  • Fines and penalties. Claims arising for compensation to cover fines or penalties suffered by the insured
  • Directors or officers. Liability arising from claims where the insured was acting in the capacity of the director or officer of a company or organisation
  • Insolvency. Claims made against the insured where all or part of the claim is attributed to the insolvency of the insured or their suppliers/contractors
  • Licensing enquiries. Claims made against the insured for failing to be properly licensed, registered or accredited to provide their professional service
  • Manufacturing, efficacy, faulty workmanship. Claims for loss arising out of poor manufacturing or faulty workmanship by the insured
  • Owners and occupiers liability. Claims arising from occupation, leasing or ownership of any rental or other property
  • Retroactive date. Claims for things done or that are thought are to have taken place prior to the retroactive date
  • Superannuation trustee. Any claim arising from connection or conduct between the insured and a superannuation trustee
  • War or act of terrorism. Any claim arising from war or terrorism regardless of any cause or event.

  These are very broad definitions of some typical exclusions that may be placed on certain policies. It is essential that anyone looking to take out cover is aware of all policy exclusions and the conditions for claim payment prior to application

Do I actually need professional indemnity insurance?

Any time advice is provided to clients, you should consider professional indemnity insurance.

Despite your utmost care, mistakes and lack of judgement can happen in the workplace and will often lead to the professional’s client seeking compensation for damages. A professional can still be liable for losses even if the mistake was not a result of their own negligence. Even if the claim is illegitimate, you may still need to go through the legal process of defending yourself against it.

Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs.

Here are some situations where professional indemnity insurance could be applicable:

Case studies for specific occupations

Some of the industries now prioritising professional indemnity insurance include financial advisers, lawyers, tradespeople, marriage celebrants, beauty therapists, engineers, personal trainers and graphic designers. Here are some real life examples of professional indemnity insurance claims:

• Accountant

  • An accountant advised their client that an expense was tax-deductible. The ATO investigated the claim and fined the client. The accountant was liable to pay legal fees to defend the claim and pay compensation to the client. Having professional indemnity insurance ensured those costs were covered.

• Building inspector

  • A building inspector completed a pre-purchase report for a client buying a new house. It was later found that there was significant structural damage in the roof that was not identified in the report. The client sued the building inspector for damages. The building inspector’s expenses were covered by their PI insurance policy.

• Events manager

  • An events coordinator double booked a room at a function centre, resulting in the cancellation of one of the events. The client whose event was cancelled made a claim seeking damages for lost business and to recoup expenses. The events coordinator was able to cover these costs because they had a PI policy in place.

Services that generally require professional indemnity insurance

As mentioned previously, anyone that provides advice or a service to another in an established discipline is a potential candidate for professional indemnity insurance. Some typical professions that will usually require professional indemnity insurance include:

Many professions work closely with Australian governing bodies to determine an appropriate level of professional indemnity cover that is required for their profession. Regulations around what types of insurance are mandatory for different industries can vary from state to state. It might be best to consult with your industry body to get a clear understanding of the specific types of cover you require.

When is Professional Indemnity Insurance compulsory in Australia?

What about these types of business activities?

• Work that is supervised

  Just because the work is supervised by a principal of the company is no reason for workers to think that they may not be liable to defend claims for negligence. In the event that they end up in court on claims for negligence, the cost of legal fees and advice alone could quickly amount to tens of thousands of dollars. This may only be the start of a potential financial nightmare if they are found to be liable.

• Contract workers

  There have been cases in Australia where contract workers and consultant have still been found to be negligent despite carrying out duties given by principal with whom they were employed. Many companies will now require contract workers to have both professional indemnity insurance and public liability cover in place. If the work the contract worker performs causes damages, they are liable for claims from the employing company.

Professional indemnity insurance cost

An average professional indemnity insurance policy costs $551. However, costs can vary widely depending on the policy, provider, industry you work in, your turnover and the risk associated with your business. To give you an idea of the costs, we looked at the cost of professional indemnity insurance for a tax agent to get a rough idea of how much it costs.

Data was taken from our quoting engine on February 2018. We used a sole trader tax agent looking to get $250,000 in professional indemnity insurance cover.

Features of professional indemnity to understand

There are some important policy features that you should understand when it comes to professional indemnity

• Claims Made Cover
• Run Off Cover
• Fidelity Insurance

The different types of liability cover in Australia

3 tricky terms to also be aware of

• 1. The Policy Retroactive Date
• 2. Costs inclusive vs exclusive limit of indemnity
• 3. Costs exclusive vs inclusive excess

How much cover do I need?

Unfortunately there is no set answer for how much cover you should take out. Every business is different and there are different regulations in place for minimum cover required for certain professions. These requirements can also vary from state to state. Some other factors to consider that will impact what you pay for cover include:

• Clause of contract. Most contracts will specify a minimum amount of cover that the worker must have in place to carry out the project.
• Type of project and value. This is the correlation between the value and size of the project being undertaken and the workers exposure to claims for professional negligence
• Perceived exposures. Assessment of possible causes of loss, injury or damage that may lead to a claim being brought against you.
• Number of parties relying on advice. If the nature of the project means that advice will be passed onto more than one party, the worker may be liable for claims from other parties affected.
• Cost of defending a claim. Some policies will have an additional limit applied for the actual cost of defending a claim. Lengthy court cases can quickly run into the tens if not hundreds of thousands of dollars.
• Willingness to carry risk. This requires the worker to assess how much of the risk they are willing to carry themselves with a lower policy limit or by transferring the risk to other parties.
• Cover for previous claims. Professional Indemnity Insurance is of a "Claims Made Basis" . This means that cover can apply for claims made against the worker for previous activities. With this in mind it's important to consider the potential value of claims in the future following inflation.

Determining an appropriate level of cover is no easy task. It's worth taking the time to speak with a financial adviser to help you assess the risks you are exposed to and what protection packages may be suitable.

Professional Indemnity vs Public Liability

Can I get covered for both under one policy?

• Yes you can.

One of the main reasons that people often get confused between these different types of cover is because many policies will provide cover for public, product and professional liability under the single policy.

How will I know if I have combined cover?

This is usually outlined in the product cover features and exclusions though it can be difficult for applicants to know exactly what events they will be covered for. Many professional indemnity insurance policies will have exclusions in place for injury or damages to property and vice versa. As an example, a professional indemnity insurance policy may have the cover extension that provides cover for claims arising out of “Manufacturing, Loss or Faulty Workmanship” though this may recognise personal injury or damage to property as a loss.

What are the risks of a combined policy?

The risk is that many policyholders may actually be significantly underinsured from particular losses by relying on one umbrella policy to provide adequate cover for public, product and professional liability. It is worth speaking to an insurance consultant to help them find and tailor a policy closer to their needs.

Learn more about how these two types of cover are different

How do I compare professional indemnity insurance?

With so many different cover options available on the Australian Professional Indemnity Insurance market, it is crucial that any sole trader or business looking to take out cover take the necessary steps to compare different options to ensure they are receiving adequate cover at the right price.

• Default cover features: It is critical that anyone looking to take out cover closely review the cover features listed in the product disclosure statement to know exactly what liability they will be covered for. Refer to this section for an overview of typical cover options
• Policy extensions: Most policies will offer a number of additional cover options to applicants to ensure there is an adequate level of cover in place. Such extensions may include run off cover and fidelity insurance
• Limit of liability: Each insurer will clearly state the maximum compensation that will be paid for each claim within the product disclosure statement
• Policy exclusions: Each insurer will have its own set of exclusions for when a policy will not be paid. It is critical that these are reviewed closely when comparing policies to avoid any surprises in the event that a claim is made further down the track. It is not enough to just skim over these…the conditions for payment must be closely reviewed and understood
• Entities covered under the policy: Each policy will list the parties that will be covered under the policy. It is critical that any business owners looking to take out cover for employees and other entities related to their business that they have a clear understanding of whom exactly is covered for the provision of professional services
• Professional services provided in the past: It is vital to have a clear understanding of how your insurer deals with claims for work that you carried out with a previous employer or while covered under a previous policy. Many policies will not recognise claims that have been made outside of their retroactive date
• Cooling off period: Each provider will offer a cooling off period whereby you will have the option to cancel your cover if you feel it does not meet your needs. This is generally about 21 days
• Claim conditions: Insurance brands will have conditions in place for the payment of claims for different liability faced by the insured. Some key aspects of the insurers claims conditions to review include;
  • Alteration to risk
  • Assignment
  • Authorisation
  • Cancellation / Termination
  • Changes to the policy
  • Worldwide territorial / jurisdictional limits

Get a quote for professional indemnity

When is professional indemnity insurance compulsory in Australia?

Depending on your location and occupation, you might need to get professional indemnity cover before you can legally provide your services.

Certifications

Other times, it might not be mandatory, but will be required in order to develop your career. For example, you are required to hold professional indemnity insurance in order to become a Certified Practising Accountant in Australia.

Industry requirements

Meanwhile, other industries have professional indemnity insurance requirements all over Australia. For example, you cannot practice as a physiotherapist in Australia without professional indemnity insurance.

While care has been taken to ensure the accuracy of the following information, it is not comprehensive and may be subject to changing legislation. Business insurance brokers or industry representatives may be able to help you find information for your situation and profession.

• NSW
• Queensland
• Victoria
• South Australia
• Northern Territory
• ACT
• Tasmania
• Western Australia

How do I make a claim?

In the event that a claim is made against the insured, it is their duty to inform the insurer as soon as possible. Notice is to be put in writing and sent to the insurer by courier, fax or certified mail. The insurer will recognise that notice has been received once their underwriting division has received the notice. Every letter, demand, writ, summons and legal process pertaining received by the insured related to the claim must also be forwarded across to the insurer. Most insurance brands will have claims form located on their website for the insured to complete. These will usually be comprised of the following sections:

• Details of the insured
• Policy details
• General information about the claimant or potential claimant
• Details of the insured’s retainer/contract
• Details of the claim or circumstance
• Details of the insured’s response
• List of relevant documents that have been attached to the claim form
• Insured’s declaration

• Conditions to be aware of when making a claim

  Claims co-operation: In the event of a claim, the insured will do everything in their power to provide all necessary documentation and evidence to the insurer relevant to the claim that is made. They will also do everything in their power to diminish the loss and assist with the defence, investigation or settlement of any Claim. This is to be done at the insured's own cost. Advance payment of claims expenses: The insured will advance payments of necessary expenses that may be incurred in the defence of a civil liability claim. All payments must be repaid to the insurer in the event that the insured is not eligible for payment of such claim expenses under the terms of the policy. Claims conduct: In the event that a claim is made:

  • Insurer is entitled to take over and conduct in the name of the insured to defend any claim made
  • Insurer reserves the right to deny cover to the policyholder as it assesses a claim or conducts defence on behalf of the insured
  • The insured or insurer will not contest or litigate the claim if the senior council is of the belief that attempts should be made to reach a settlement for the claim

  Allocation: In the event that there is a claim made for losses that are both covered and not covered under the policy, the insured and the insurer will work together to agree upon a fair and proper allocation between covered loss and uncovered loss by taking into consideration the financial exposure to both covered and uncovered parties. Defence and settlement: The insured will not admit liability or settle a claim without first receiving the insurance brands consent. Other insurance: In the event that the insured may be covered under other forms of insurance, they must give complete details of this cover to the insurer. Most policies will not cover any claim or loss that may be covered under another policy.

Some final questions you might have

• Who is considered a professional?

  An individual that provides advice and/or a service in an established discipline is considered to be a professional. This may be anyone from lawyers to architects to graphic designers.

• Why is professional indemnity insurance necessary?

  Each professional is responsible for showing duty of care in the provision of their service to clients and members of the public. In the event that in the course of provision of the service the client suffers a loss through an act, error or omission by the professional, professional indemnity insurance protects the professional from financial loss that may be suffered from any claims. Some workers will be required to hold a professional indemnity insurance policy by law either as a contractual requirement or to be a member of an association relevant to their field.

• How do I get professional indemnity insurance?

  Cover can be purchased either directly from the insurance brand or with the help of a financial adviser. An adviser can help you determine an appropriate level of cover and assist you with your policy application.

• What is the difference between a “claims made and notified policy” and an “occurrence policy”?

  • Claims made and notified: Any fact, situation or occurrence that may lead to a claim being made must be notified to the insurer within the period of insurance. If the policy has retroactive cover in place, the event leading to the claim could have taken place prior or after the period of insurance. The insured must not have any prior knowledge of any known circumstances that may have resulted in a claim.
  • Occurrence policy: Event leading to a claim must take place during the period of insurance, though the insurer can be notified of the event at any time following.

• When should an insurer be notified in relation to a claim made?

  An insurer should be notified at the occurrence of any fact, situation or circumstance that would provide a reasonable basis for belief that a claim might be made against the insured. The earlier that the insurer is notified the less the likelihood of a successful claim being made against the insured.

• What is loss of documents?

  The loss of documents as recognised under professional indemnity insurance is the loss of a third party's documents that were in the possession of the insured. A claim may only be filed if the insured has suffered a financial loss as a result.

• Do insurance brands charge excess in the event of a claim?

  There are two types of excess that may be applied to the policy:

  • Costs inclusive: Excess applied to legal costs and settlement.
  • Costs exclusive: Excess applied to actual settlement of a claim. No excess is paid if matter is successfully defended.

  Costs exclusive is more desirable to policyholders but is only offered by select insurance brands and at a higher premium.

• What is covered under civil liabilities professional indemnity insurance?

  Policyholder is indemnified from claims arising from civil court. This is in comparison to criminal liabilities that may be involved by a criminal court.

• What is the policy inception date?

  This is the start of the policy period.

• What is the retroactive date?

  This is the date whereby events, acts errors or omissions by the insured that may lead to be a claim following will be covered.

• What is hold harmless clause?

  A hold harmless agreement is an agreement in contract between two parties whereby the recipient of that clause is “held harmless” by the other contracting party or anybody else claiming against the recipient for events related to the contract. This effectively means that the professional cannot be held liable by the contractor for any claims or loss in respect of the service provided. This can cause issues for insurance brands if they wish to subrogate against another party for the recovery of a claim for another party that is found to actually be liable. If the other party has a hold harmless clause in place, little can be done by the insurer to recover this claim.

• What is automatic reinstatement in professional indemnity insurance?

  Professional indemnity insurance policies will have a benefit limit that can be paid for the total sum of claims made against the insured in the policy period. Automatic reinstatement allows the aggregate limit to be increased, while the sub-limit for individual claims will remain the same.

• What does a professional indemnity insurance policy contain?

  • Clauses: Lays out the insurance brands obligations to the insured in the event that a claim is made
  • Exclusions: The exclusions outline the conditions of the policy clauses and events where the insurer is not liable to indemnify the insured
  • Conditions: Outlines the general and claim conditions applied to the policy. They establish the preconditions to coverage under the policy
  • Extensions: Any additional options that may be necessary for the applicant to take out to ensure adequate protection is in place. This may include cover for product liability or run-off cover

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