Professional Indemnity Insurance
By Lynch Insurance Brokers on 14 Mar, 2016
What is Professional Indemnity Insurance?
Companies or individuals providing professional advice or professional services can be held liable for claims arising from professional negligence committed. These liabilities put you, or the company you work for at risk of a claim that could potentially wipe out business. Professional Indemnity Insurance covers this risk.
Professionals are currently operating in an environment of increased accountability. Third parties are becoming more aware of their legal rights and we are seeing an increase in the number and size of claims being brought against professional service companies and individuals. This means that Professional Indemnity Insurance is becoming an essential benefit to business.
In addition to the payment of settlements and awards, substantial defense and legal representation costs can be incurred in defending the company and its reputation, even if the claim appears to be without substance. Professional Indemnity Insurance policies provide protection for these costly claims brought against an individual or company and/or its principals, partners and employees.
Do I need professional indemnity insurance?
If you are providing a professional service or advice of any kind, it’s a good idea to look at professional indemnity insurance. A professional mistake can result in a financial loss to your customer, and without cover in place it is possible a claim could cripple your business.
In the past, only very specific professions would take out Professional Indemnity Insurance, however, the rapid growth of the service sector and the trend for companies to outsource skills has created a new legion of individuals providing professional services. While this type of cover can be mandatory for most of the regulated professions (including chartered accountants, lawyers/attorneys, insurance brokers, and surveyors), it is also common for the companies hiring to insist that individuals have Professional Indemnity cover in place before they hire anyone to perform work for them. Because Professional Negligence is a common exclusion under Public Liability insurance policies, it is vital to ensure that all Consultants and Professionals either be in a position to live up to their responsibilities or have an insurance policy in place to cover the same. This is a theoretical position, but the reality is that given the nature of their work, in most cases Professionals do not have the capacity make good on their larger errors or omissions. Hence, adequate security is often best secured via a Professional Indemnity Insurance Policy.
In recent years we have seen the lines between who is ultimately responsible for errors becoming more blurred than ever. Consultants have found themselves taking on the roles formerly handled by other professionals, and often act as Lead Consultant on jobs and hire other professionals to perform work for them. In cases like this, care needs to be taken to not only ensure that you understand the risks that you are taking on, but also the costs associated. It is vital that your insurers are informed of your various roles to be sure you are covered.
So, even if you aren’t required to have cover, if you are providing any type of service or advice to third parties, the peace of mind awarded when you take out Professional Indemnity Insurance makes it a worthwhile purchase.
Here are some professions that should consider Professional Indemnity Insurance as good standard of practice:
- Business Advisers and Coaches
- Business and Management Consultants
- Doctors, Medical Practitioners & Pharmacists
- Educational Consultants and Inspectors
- Estate and Letting Agents
- Event and Wedding Planners
- Financial Advisers
- Health and Safety Consultants
- Insurance Brokers
- IT Consultants and Contractors
- Marketing and Media Professionals e.g. Copywriters, Social Media Consultants
- Website Designers and SEO Professionals
Will a Professional Indemnity Insurance policy offer me cover of physical damage?
Physical damage is covered by Public Liabilty Insurance. Professional Indemnity Insurance covers financial damage customers incur due to neglegent professional service or advice.
What protection will a Professional Indemnity Insurance policy offer me?
A Professional Indemnity Insurance policy will offer the following:
- Cover in the event that a client makes a claim against you for professional neglegence; or loss of client documents or data (while in your possession); or unintentional breach of copyright and/or confidentiality; loss of goods or money
- Cover of the costs of putting right any mistakes you have made
- Cover of any legal representation required (taken care of by your insurer)
- Cover of any damages granted to a client (the amount of financial cover you qualify for depends on the level of protection you opt for when taking out a policy)
- Some policies even provide cover if an employee of a company (not a director or partner) has stolen from a client
What limit of professional indemnity do I need?
The appropriate professional indemnity insurance limit depends on you or your firm's circumstances. If the cover is required by a contract there will typically be a specified minimum amount in the contract terms. If not, through Lynch and Marsh you have access to various industry standard benchmarking reports that can guide you.
To help start your thinking towards how much risk you or your company could be exposed to, ask yourself;
- What is the maximum value of the contracts or projects you typically undertake, and how big are each of the clients you are working for?
- If you make a mistake, how much damage could it cause, and how much compensation would a client try to claim against you? Or how much would it cost you to put it right?
- How much would a claim cost you in legal fees to defend the case?
- What is the worst-case scenario, and would your business be able to survive such a claim?
Conversely, you cannot depend on any legislation to protect you from professionals who lack this type of cover. Even where it is mandated, it is often ridiculously low. This is often the case of insurance Brokers in Barbados where the current requirement is only $1,000,000.00 in cover. At Lynch, however, we carry $40,000,000.00 in cover.
Should I take out Retroactive Professional Indemnity Insurance cover?
When you are taking out professional indemnity insurance you will be asked whether you want to include ‘retroactive cover’. This is an option to include work that you have already done within the policy. If you have been in business for a while but didn’t have a professional indemnity policy in place when you first started, it’s a good idea to include retroactive cover.
Some insurers will place a retroactive date in the policy wording. Work done before this date will not be covered, so be sure you check the policy. If no retroactive date is specified, all the work you have done since you started the business will be covered.
You will need to declare that you have no reason to believe that any claims will be made against your previous work when you sign up.
What should I look out for when choosing a Professional Indemnity Insurance policy?
A quick online search will highlight dozens of insurers that offer Professional Indemnity insurance. With such an array of providers to choose from it can be difficult to know where to start.
Some aspects for you to bear in mind include:
- Does the insurer have a good reputation?
- Do you feel the insurer will deal with a claim efficiently and pay out if needed?
- What is the excess?
- What is the limit of Indemnity?
- Can the policy be tailored to suit your specific needs?
- Is retroactive cover offered and what is the date?
- What is the Geographical Area and Jurisdiction clause on the policy?
- Is there a premium payment warranty?
- Does your proposal properly describe your business, such that insurers would properly contemplate any error or omission?
While we all aim to conduct business without mistakes, even small ones can be extremely costly for an individual or company. When you consider that having cover can be the difference between saving and losing a business; the value proposition is sound.
To find out more on how we can help find you a policy to protect your business, contact a Lynch representative today by telephone at (246) 426-5062 or email: firstname.lastname@example.org
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