What is Professional Indemnity Insurance Australia?
Professional indemnity insurance is an essential type of insurance cover for many Australian businesses and professionals. This type of cover is specifically designed for professionals who offer advice or a service to their clients.
In the course of carrying out your occupation, if you make a mistake or omission it could result in a third party suffering a loss. If that third party decides to sue you for breaching your professional duty, you and your business could end up in a whole lot of trouble. Defending yourself against legal action isn’t cheap, especially if you end up having to pay damages.
This is why professional indemnity insurance is such a wise investment. It offers much-needed protection for businesses, providing cover for the cost of your legal defence. This type of policy will also cover any compensation that you are legally required to pay, allowing you to conduct your everyday business with the confidence of knowing that you will be protected if something goes wrong.
- Professional Indemnity Insurance Definition: What does it actually cover?
- Who needs Professional Indemnity Insurance
- Broker or Direct Insurer for Professional Indemnity?
- How are Premiums Calculated for Professional Indemnity Insurance in Australia?
- What to Look For When You Compare Professional Indemnity Insurance Policies
- Professional Indemnity Tips
- Professional Indemnity Insurance Australia FAQs
- Receive a Professional Indemnity Insurance Quote
Professional Indemnity Insurance Definition: What does it actually cover?
A standard professional indemnity insurance policy generally covers losses that arise from the following:
- Breach of professional duty. If your client has suffered any financial, physical, or material loss as a result of a breach of professional duty on your part, these claims are the typical claims covered by professional indemnity insurance. Even if the breach was the result of an omission, mistake or by unavoidable circumstances, your client could still file a claim for the loss they incurred. It is important to remember that confidentiality is also considered to be a professional duty.
- Misleading and deceptive conduct. If you misled a client in any manner and that misleading and deceptive conduct resulted in a financial loss for your client, you are liable. The misleading or deceptive conduct does not necessarily have to be on the part of the actual professional. If an employee of your business mislead a client, your clients could have grounds for a valid claim.
- Unintentional defamation. If any action on the part of a professional leads to unintentional defamation of a client that could be valid grounds for a claim. Any damages that may be awarded as part of such claims are typically covered under PI insurance.
- Breach of fiduciary duty. There are certain professions, including financial agents and brokers, who have a fiduciary duty to their clients. What this means is that the professional is required to act solely for the benefit of their clients. If a client proves that a professional has breached their fiduciary duty for personal gain, they can file a claim for any financial losses they incurred. Such claims and subsequent damages paid are also covered under PI insurance.
- Breach of Trade Practices Act. The Trade Practices Act in Australia protects consumers by ensuring that professionals conduct themselves fairly and do not engage in restrictive trade practices. If a professional is found to be in breach of the Trade Practices Act, a client can make a claim against the professional for any financial losses they may have sustained as a result of the breach. These claims are typically covered under PI insurance.
- Negligence. A certain level of expertise is expected from professionals, in accordance with the profession that they are in. If a professionals’ services are found to be negligent, intentionally or otherwise, then they are liable for civil claims made by affected clients. For example, if a doctor fails to sterilise their equipment, resulting in complications during surgery, these actions are considered to be negligence. If the negligence results in physical, material or financial losses for the client, they could be looking at a valid claim. However, with professional indemnity insurance in place, such claims can be covered.
- Fraudulent or dishonest actions. Damages that arise from claims that are brought against fraudulent and dishonest acts on the part of a professional may also be covered under PI insurance.
Depending on the cover provided under the professional indemnity insurance policy that you have purchased, damages arising from claims such as the above may be paid by the insurance company. In addition to paying the damages awarded to the client, the insurance will also cover all legal and defence costs that have been borne in the settlement of covered claims.
Who needs Professional Indemnity Insurance?
There are a number of professions that require people to take out professional indemnity insurance. In fact, this type of cover is even mandatory in certain industries.
Professional indemnity cover is designed for people who offer a professional service or advice to their clients. If your work causes someone to suffer a loss, be it financial, physical or material, that third party may make a claim of negligence against you.
The list of professions for whom this type of cover is a necessity is long and includes:
- Building inspectors
- PR consultants
- IT consultants and professionals
- Personal trainers
- Employment agents
- Event managers
- Health care providers.
This is far from an exhaustive list of professions but it gives a general idea of those who should consider taking out cover. Having professional indemnity insurance in place ensures peace of mind and can help guarantee the future success and financial survival of your business.Back to top
Broker or Direct Insurer for Professional Indemnity?
If you’re looking to take out professional indemnity insurance, one important factor to consider is whether to purchase your cover through a broker or direct from an insurer. Each approach has its own benefits and drawbacks, so it pays to weigh up the pros and cons before deciding on the best option for your business.
Purchasing direct from the provider
The main benefit of buying direct from an insurer is that there’s less hassle involved in the purchase and application process. Direct insurance is designed to be straightforward in order to encourage more people to take out cover. It’s quick and easy to apply and there are fewer questions to answer during the application process. You can obtain a number of quotes without having to leave the comfort of your home.
However, the problem with the direct insurance approach is that it’s entirely up to you to work out how much cover you need and find the right policy. The insurance marketplace can be a daunting and confusing place and making sense of the technical jargon, policy limits and exclusions can be difficult for a layperson. As a result, many people end up under- insuring their business or paying money for cover they don’t need.
Purchasing cover with a broker
This in turn leads us to the main advantage of buying cover through a broker. Brokers can offer you the advice and assistance you need to find the right level of cover. Brokers have the advantage of having years of experience in the industry and can draw on their knowledge of the different providers and brokers to help you find appropriate cover. A good broker will take the time to assess the needs of your business and then present a range of suitable policy options to you.
A broker can help you understand any complex terms and conditions and offer advice tailored to your specific situation. Like an accountant who works to manage your finances as best as possible, an insurance broker’s job is to work in your best interests to help you find the right cover.Back to top
How are Premiums Calculated for Professional Indemnity in Australia?
Just like with many other types of insurance, there are a range of factors that can affect the cost of your professional indemnity insurance premiums. Premiums will obviously differ from one insurer to the next but insurance providers will generally look at the following factors when assessing your insurance application:
The size of your business. How big is your annual turnover? How much do you charge your clients? In a nutshell, the more projects you take on, the greater the risk of a claim being made against you. If you manage big contracts, there’s an increased likelihood of you being required to defend big claims and possibly be required to pay large amounts in damages. This increased risk will be reflected in your premiums.
- What your business does. The industry you work in will also have a big impact on how much your premiums cost. Some industries are considered more hazardous than others and as such, those industries premiums will be higher.
- The level of cover you take out. This factor is an obvious one, as you’ll obviously need to pay more in order to take out a comprehensive level of cover. If you’re only looking to insure a small sum but you won’t have to pay as much for cover.
- Your professionalism. Do you have adequate training and qualifications to work in your chosen field? Does your business have risk management structures in place? Do you run a professional business? All of these factors will be taken into consideration by an insurer assessing your application.
What to Look for when Comparing Professional Indemnity Insurance Policies
There are various types of professional indemnity insurance policies available from different insurance providers and the conditions vary according to your particular profession and industry. However, there are certain factors that are common in most PI insurance policies and you need to consider them when comparing different policy options.
- Limit of Liability. The professional indemnity policy you choose will have a specified limit of liability. The exact amount of the limit of liability will depend on your profession. If a client has filed a claim against you, your insurance company will only pay claims that are within the amounts specified as your policy’s limit of liability. If damages exceed your limit of liability, you will be liable to pay the excess out of pocket. For this reason it’s vital you try to find a policy that has high limits of liability at the lowest possible premium rates. The Limit of Liability can be inclusive of costs, which means that all legal and defence costs are also considered as part of the limit. Alternatively, the Limit of Liability may be exclusive of costs, which means that all legal and defence costs will be paid in addition to the limit for damages.
- Run-off cover. This is another important consideration when buying professional indemnity insurance. This type of cover is aimed at providing you with cover even after you have closed down your business. It is not unusual for claims arising from professional services to be filed years following the actual business was provided. Clients can file claims against you months, even years after you have provided them with your professional services. In situations like these your PI insurance run-off cover will protect you if you are found liable to pay compensatory costs.
- Excess or deductibles. Most professional indemnity insurance policies have a certain amount of excess or deductible. Excess is the amount that the professional has to pay from their own pocket for any valid claim before a benefit is provided. There can also be two types of excess:
- Cost inclusive excess. You will be required to pay the amount of excess for legal costs too.
- Cost exclusive excess. You do not need to pay any excess towards defence costs. You only need to pay the excess if actual damages have been awarded to the claimant.
It is also important to compare various quotes from multiple insurance providers to ensure that you are getting a good deal as far as professional indemnity insurance is concerned.Back to top
Professional Indemnity Tips
There are a number of potential issues you should be aware of when taking out professional indemnity insurance cover. The first thing you should do is ensure that your business activities are accurately listed on your insurance schedule. Make sure all of your business activities are described in adequate detail — if they are not, you may not be covered for certain incidents or events down the line.
The next important step is to make yourself aware of exactly what your policy covers. What is the limit of indemnity? Is there enough cover in place to provide adequate protection?
In addition to the cost of premiums, you should also consider the excess you will have to pay in the event that you make a claim. You may want to think about raising your excess to lower your premiums.
Check the various limits on your policy. For example, if you provide products and services in other countries, does your policy offer any protection beyond Australian borders?
Finally, it’s important to remember that professional indemnity insurance is offered on a ‘claims made’ basis, which means that cover is provided by whatever policy you have in place when you are first made aware of circumstances that may lead to a claim. As a result, it’s important to notify your insurer as soon as you are made aware of anything that result in a claim, while you should also take previous projects into account when considering how much cover you need to take out.Back to top
Professional Indemnity Insurance Australia FAQs
Q. How much professional indemnity cover do I need?
- A. In order to work out how much cover you need, you’ll have to take into account a number of factors. What sort of industry do you work in? What is your annual turnover? Do you take on high-value projects regularly? In short, assessing the risks your business faces will give you a better idea of how much cover you need.
Q. What does ‘claims made’ mean?
- A. Professional indemnity insurance is typically offered on a ‘claims made’ basis. This means that the policy that will provide the cover you need is the one that is in force when you are made aware of circumstances that may lead to a claim.
Q. What is run off cover?
- A. As professional indemnity cover is offered on a claims made basis, if you decide to retire it’s often essential to ensure you maintain some form of cover to protect you for claims against past work. This is where run off cover comes in.
Q. What should I do if I’ve made an error that could lead to a claim against me?
- A. The most important thing you can do is notify your insurer as soon as you are made aware of any circumstances that could lead to a claim. This is the best way to guarantee that you will be covered.
Professional indemnity insurance is a vital form of cover for many businesses. Make sure to compare your options at finder.com.au to find the right level of cover, and seek help from an insurance broker if you need it.Back to top
Receive a Professional Indemnity Insurance Quote
While it is important you have professional indemnity insurance coverage in place, it is also important to be mindful about your outgoings in terms of premiums. It is advisable to ensure you get a range of quotes from a number of providers in order to help you find the right cover at the right price.
Trawling your way through all the providers and plans on the market can be drawn out and frustrating process. However, by going computer and comparing plans and providers online, you can simplify the whole process.
There are many reasons why you should consider going online in order to find the right professional indemnity quote:
- You can search for and compare quotes from a range of providers quickly and easily
- You can run your search and conduct the whole process from the comfort of your home or office
- There is plenty of choice in terms of providers and professional indemnity plans when you go online
- You can take the time you need to carefully check any plans you are considering to ensure that they are suitable
- You will be able to compare the cost of coverage with greater ease.
Having professional indemnity insurance in place is essential if you want to enjoy peace of mind as well as financial protection against the risk of claims for damages. You will find a number of insurance providers that are able to offer professional indemnity insurance cover to you as a professional, so you will have plenty of choice, which means that you should be able to find the right plan at the right price.Back to top