What does Professional Indemnity Insurance cover?
Professional Indemnity (PI) insurance is an important form of protection for businesses that provide specialist services or professional advice. It is designed to respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. PI Insurance will also assist with the legal costs associated with responding to or managing claims which are covered by the policy.
As a professional, people pay for your pearls of wisdom and expert services. Whether you’re a master of accounting, a real estate sales gun, or a magical make-up artist, the chance of a claim occurring is real, no matter how good you are at your profession. Whether the alleged mistake happened or not, your client could take you to court for damages. And even if you are not guilty, the legal fees alone and lost days in court could cripple your business and force you to shut shop.
Unfortunately, your client could take you to court for damages, whether an alleged mistake happened or not. Even if you are not guilty, the legal fees and lost productivity caused by days spent in court could cripple your business and force you to shut shop. Sadly, the risk of a professional indemnity claim is part and parcel of being a professional.
Professional Indemnity insurance is designed to protect you from a wide range of potential risks. Even seemingly small errors, such as being a few centimeters off on an engineering calculation, could have an astronomical financial impact on your business – something that you’ve worked hard to build and something that is worth protecting. These claims can run into the hundreds of thousands or even millions of dollars. A hefty bill like that is very difficult to cover without the protection of the right insurance.
What actions could result in a claim?
All it takes for a claim to arise is for one unhappy client to make an allegation regarding the advice or service you have provided for a claim to arise. Some of the common reasons why someone may lodge a claim against you include:
- Making an unintentional mistake
- Overlooking a critical piece of information
- Misstating a fact
- A client misinterpreting advice that you have given them, resulting in them suffering a financial loss
Guilty or not, the cost of defending an accusation of wrongdoing alone can quickly rack up a rather pricey bill, not to mention the time required for gathering evidence, attending legal meetings and potential court hearings. All of this takes precious time and money away from your day-to-day business operations.
Did you know?
Some professions are required to have minimum levels of Professional Indemnity cover to work in New Zealand. These requirements may be established by professional associations that govern the actions of their members or by the law.
What will Professional Indemnity insurance typically cover you for?
Professional Indemnity insurance seeks to protect your assets, reputation and the contents of your bank account. Below are some of the main things your policy may provide cover for:
- Damages and claimant costs awarded against you
- Civil liabilities which may arise from but are not limited to:
- Providing misleading or negligent advice
- Breach of duty (confidentiality and other privacy issues)
- Defamation, libel or slander
- The loss or damage to documents
- Infringement to intellectual property (including copyright infringement)
- Related defence and legal costs of a claim
- The costs involved with investigating a claim including those by a professional body
- The cost of responding to a disciplinary inquiry
- Court attendance costs
- Public relations costs
- Bodily injury or illness caused from the professional services covered under the policy
What is typically not covered by Professional Indemnity Insurance?
- Intentional damage
- Any claims or circumstances that are known prior to the period of insurance
- Acts of fraud and dishonesty
- Accidental injury and property damage
Why do small businesses consider PI insurance?
A PI policy helps take this burden off your shoulders. Instead of dipping into your business (or even personal) savings to defend your professional reputation and business, your PI policy can foot the bill instead. This can provide important peace of mind for both you and your clients. You’ll know that your business is well protected, and they’ll know that you take your professional reputation seriously (and are prepared to defend it, if necessary).
What types of professionals need Professional Indemnity insurance?
Within New Zealand, it is compulsory for some professionals to hold and maintain Professional Indemnity insurance and these include:
- Registered Migration Agents
- Architects and Draftsmen
- Real Estate Agents
- Finance and Mortgage Brokers
- Bookkeepers/ BAS and Tax Agents
Other professions which often require Professional Indemnity insurance include:
- Allied Health Professionals
- Management Consultants
- Recruitment Consultants
- Marketing Consultants
- IT Professionals
- Building Inspectors
Even if you don’t see your profession listed above, you might still consider having a Professional Indemnity insurance policy to help protect your business. A policy may be helpful if you or your employees regularly give clients advice or provide them with professional services. You might also decide to seek cover if you design custom solutions for clients or customers.
Basically, if there is a possibility of a third-party claiming losses due to actual or alleged negligence in your professional services or advice, it might be a financially sound decision to protect your business and take out Professional indemnity insurance.
Things to Consider When Buying Professional Indemnity Insurance
There are things to consider when you buy any type of insurance, including Professional Indemnity. As you compare policies, you may want to ask yourself the following questions:
- What risks does my business face? The PI policy you choose should cover the areas of specific risk that are unique to your small business. These will depend on the industry you work in, the type of work you do or services you provide, the number of clients you have, and the size of the contracts you take on.
- How much cover do I need? PI insurance is meant to protect you from third-party claims, and your level of cover should match your level of potential risk. Also, some professions may be required to maintain minimum levels of cover by law or a professional association.
- Are there any exclusions? The last thing you want is to be facing a claim only to realise that you’re not covered due to an exclusion on your PI policy. Carefully review your policy wording to make sure you are not left exposed. Cover that is tailored to your profession may provide more comprehensive protection for the unique risks you may face in your industry.
How much does Professional Indemnity insurance cost?
Providing an average cost for Professional Indemnity insurance can sometimes be tricky, because the premiums you pay will be based on several factors. Many of the things that make your small business unique are used to calculate how much you will pay for a policy.
Factors used to determine PI premiums include (but are not limited to):
- The industry you work in and/or your occupation
- Where your business is located (or the geographic region where you work)
- The size of your business and annual turnover
- Who is being covered by the policy and their qualifications
- How much cover you need (or want) to have
- Your history of PI insurance claims
Often, the easiest way to understand how much you can expect to pay for PI insurance is to compare quotes from multiple insurers. BizCover makes this process easy, so you can quickly compare polices, choose what works best for your small business, and buy – all in minutes!
Get more information
Still have questions about Professional Indemnity insurance? These articles from our blog might help:
A more detailed look at how PI premiums are determined and the factors that most insurers use to calculate your cost.
Learn more about making a PI claim, why notifying your insurer is important, and your what your duty of disclosure is.
More information for chartered accountants and Certified Public Accountants (CPAs) looking for PI insurance to help protect their small business.
Information for consultants to help them find PI insurance for their consultancy, as well as a brief look at other forms of insurance you might consider.
* As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice.
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