Both types of insurance cover negligence on your end but what's the difference?
Anyone who runs their own business knows just how important insurance cover is. You work so hard to build a solid reputation and a position of financial strength, and the last thing you want to happen is for unexpected circumstances and events to wreak havoc. This is where public liability and professional indemnity cover come in.
Key differences
- Public liability insurance. Designed to cover claims that occur out of failing to meet general duties of care e.g. knocking into someone in public with your equipment and causing injury.
- Professional indemnity insurance. Designed to cover claims that occur from errors in professional advice e.g. a financial planner providing negligent advice.
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What is the difference between the two?
Though there are similarities between professional indemnity insurance and public liability insurance, these two types of policies provide cover for different situations and events.
Jason the doctor
To illustrate the difference let's take Jason, who owns his own medical practice under two different scenarios.
Scenario one:
Jason prescribes the incorrect medicine and is sued for damages.
What insurance is suitable?
- Professional indemnity
How does it work?
Professional indemnity insurance is designed to protect you against legal claims for incorrect advice or negligence when performing services. This is not covered public liability insurance.
Scenario two:
A family member of a patient slips in the bathroom of Jason's practice and sues.
What insurance is suitable?
- Public liability insurance
Any business or person that works in public spaces or deals with the public - most businesses.
How does it work?
If someone from the public is injured as a result of your business operations, they may claim against your business for being negligent. Public liability is designed to cover this type of 'general' liability.
What's the benefit of having both in place?
Public liability insurance and professional indemnity insurance are both essential forms of cover for many businesses, no matter whether you run a small operation or a large company. Together, these policies can offer you protection against a wide range of liability and negligence claims.
In detail: Professional indemnity
Professional indemnity insurance covers you for any breaches of your professional duty. If you offer professional advice or a service to a client for a fee, they could allege that your negligence resulted in them suffering a financial loss.
Professional indemnity insurance also offers a crucial form of cover for many businesses. If you offer professional advice or a service to your clients, this type of insurance offers protection you need.
But my employees are the best. Why would I need cover?
Though you may be an expert in your field and always perform your duties with the utmost care, mistakes can be made. Without professional indemnity cover in place, those mistakes can end up being extremely costly for your business. If a third party claims that acts, omissions or breaches were committed by you while performing your professional duty, you may be liable to pay damages.
Even if you are not at fault, there's the cost of fixing your image
All it takes is one mistake or one disgruntled customer to undo years of hard work, even if you are found not at fault. Professional indemnity insurance provides the cover to also restore your image e.g. hiring a public relations manager.
Learn more about Professional Indemnity Insurance
In detail: Public liability
Public liability insurance provides cover for your general responsibility not to cause property damage or injury to a third party. For example, if a client falls over and suffers an injury while visiting your business premises, a public liability insurance policy provides cover for any legal costs or compensation you may be required to pay.
- Legal costs. Public liability provides cover for the costs of your legal defence, which is a must as protracted legal battles can be quite costly. And you still have to defend yourself against such claims, even if they are completely fraudulent.
- Compensation. Public liability insurance also covers the cost of any damages or compensation you are legally liable to pay for a third party. In many cases, this type of cover can mean the difference between your business surviving or going into bankruptcy. If you regularly deal with the general public and have customers visiting your business premises, this type of cover is essential.
How much public liability insurance does a business require?
Determining an adequate level of Public Liability Insurance to take out will depend on a number of factors including:
- The nature of your work. Insurance companies will review claims data that has accumulated over the years to assess the likelihood of a claim against your occupation/business occurring.
- How large your business is. A company with a greater number of staff or higher annual revenue is generally more likely to have a claim made against it. Insurance companies may vary in how they assess the size of the business.
- Where your business is located. Businesses that carry out their service in areas that are potentially higher risk i.e. airports or mine sites may find that their cost for cover is considerably higher.
If your business is such that you never have to visit a client’s premises and very few clients actually come to your location, then you can opt for a more basic level of cover.
An insurance broker can help you secure a competitive policy that provides the right level of cover by helping you determine how much cover you actually need and finding an insurer offering suitable cover.
In order to enable you to get the best quote possible you must be able to give the insurer the most accurate information you can, especially regarding the following:
- Whether the business could be classified as being high risk or low risk
- The number of people employed by the business
- The size of the business with regards to annual turnover
- What type of business it is
- If your business is an importer or exporter, what countries does it deal with?
For example, if you run a suburban news agency with only two or three employees your public liability premium will be much lower than a blacksmith with a contract of shoeing horses for a number of leading race horse stables.
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How much does professional indemnity insurance cost?
In comparison to other types of insurance such as travel or car insurance, it is not really possible to put a clear price tag on professional indemnity insurance as it will really come down to the individual cover requirements of the professional or organisation. Some key factors that will impact the cost and amount of cover required include:
- Cover required by regulation. The Regulation and Ministerial Order often determines minimum compulsory cover requirements for different workers and/or organisation to have with principles that they are providing the business for. This will also be determined by the conditions of the agreement negotiated with the principle.
- Nature of project and likelihood of a claim. Nature of work being undertaken and likelihood of a claim arising out of professional negligence. This involves assessing possible causes of loss, injury or damage through the provision of the business. Insurance providers will reflect on claims data that has been collated to assess the likelihood of a claim occurring.
- Financial loss. Potential financial loss suffered as a result of actual or alleged breach of professional duty by worker/organisation.
- Willingness to carry/transfer risk. This is the workers willingness to be exposed to financial loss by accepting a reduced level of cover and control the risk or transfer to other parties.
- Type of cover. Cost is also impacted by the actual policy chosen by the professional/organisation and any additional cover features that they have selected.
Professional indemnity vs public liability: which one is right for you?
Though professional indemnity policies and public liability policies are quite similar in some ways, each different type of cover is better suited to a number of specific professions. As the name would suggest, professional indemnity cover is designed for professionals who offer advice or a service. If you offer professional advice, design, analysis or consultancy, you should consider taking out this cover. Occupations where it’s common to take out professional indemnity cover include architects, designers, real estate agents and PR consultants.
Public liability cover is important for anyone who has customers of members of the public visit their place of business regularly, or if you visit with clients on site and there is a risk of you damaging their property. For more information on what form of cover is right for you, speak to an insurance broker.
Professional indemnity and public liability FAQs
Q. Do I need to take out professional indemnity cover?
- A. This will depend on your occupation, but this type of cover is designed for professionals who offer advice or a service to their customers. It’s also worthwhile remembering that if you are a member of certain professional associations, some associations offer access to their own professional indemnity policies.
Q. Is it possible to take out both forms of cover?
- A. Yes, it is possible and is quite essential for some businesses. Some companies may only require either a public liability or a professional indemnity policy, though many will require both forms of cover. Speak to your insurer about bundling your cover together in a business insurance policy to take advantage of any discounts.
Q. My policy is offered on a ‘claims made’ basis. What does this mean?
- A. A claims made policy is one that provides cover for so long as an insurance policy is in place when a claim is made against you. On the other hand, ‘occurrence’ policies require you to have cover in place when an insured event occurs.
Q. How can I compare insurance policies?
- A. Finder.com.au offers a wealth of resources to help you compare the range of policy options available to you. You can seek multiple quotes from a number of insurers to get a good idea of your options, plus you should read all policy documents closely to determine the true value of each policy. Finally, if you need advice or further assistance with your business insurance, seek help from an insurance broker or consultant.
Insurance cover is a must for every business, and professional indemnity and public liability cover can both provide much-needed protection for your business against a range of risks. However, make sure to do your research and understand your insurance needs before deciding on the type of policy is right for you.
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I am working as a short term educational adviser in the TAFE sector in the Pacific. I have been told I need to get Public Liability and Professional Indemnity insurance. I do not understand why I need public liability as I am working at a TAFE institute.
Hi Angela,
Thanks for your inquiry.
Professional indemnity insurance applies to individuals and organizations involved in providing services based extensively on personal knowledge and skills.
It protects your business against claims for loss by a client or a third party if you make mistakes and are found to have been negligent.
Typically engineers, solicitors, consultants, and accountants carry PII, but many self-employed are also now choosing to have cover if they provide advice, support or contract auditing.
PII covers claims against an individual for a breach of a professional duty but, depending on the policy, cover can extend to:
• Misleading and deceptive conduct
• defamation
• Breach of intellectual property rights
• Damages arising from fraud
• Defence costs associated with claims
Insured amounts can vary depending on the level of risk to which you are exposed.
If you think of some project disasters, these sums are not unreasonable.
Hope this information helped.
Cheers,
Arnold
Where, as an Australian company, can I go to find public liability insurance in Chile?
Hi Tony,
Thanks for getting in touch. Many South American countries require insurance to be purchased in that country and you cannot use an international insurance policy, so you will need to look for insurance from a provider in Chile.
I hope this was helpful,
Richard