There is always a risk your professional advice negatively affects your client's service or leads them into trouble, regardless of your business experience or professionalism.
Professional indemnity insurance can help you by providing financial protection against legal action taken against you.
Here is a complete guide that will clarify what professional indemnity insurance in Australia is. It discusses frequently asked questions, such as what the insurance covers, who need it, the cost, and when to make a claim. Stay tuned and keep reading.
1. What Is Professional Indemnity Insurance?
Professional Indemnity insurance is also called Professional Liability insurance. It safeguards an individual or business that offers fee-based professional services or advice.
It protects policyholders from the defence costs and legal claims for injury, damage, or financial loss that could arise due to an omission, alleged negligence, or violation when operating the business.
2. What Is The Importance Of Professional Indemnity Insurance?
Protecting yourself and your employees against a professional conduct claim can be time-consuming and expensive. It can even damage your reputation in society, regardless of the authenticity of the allegation.
If anything wrong happens, you will be solely responsible for your actions, including your partners, volunteers, and employees.
With the backing of an insurance and legal team, professional indemnity insurance protects you against the cost of litigation that many small businesses could struggle to fund.
Moreover, having this insurance also protects your valued professional reputation to conduct your business with peace of mind and confidence.
Without this insurance, you will have to bear all legal defence costs and the potential costs of damages if a client performs any legal action against you.
3. Who Needs Professional Indemnity Insurance In Australia?
Does your business or occupation involve advising or providing services to other companies or the public? If yes, then professional indemnity insurance is meant for you.
Your clients depend on you to provide them with quality services and advice. Even after your good intentions and best efforts, your service or advice can result in accusations, compensation claims, and legal charges against you or your employees.
In that case, professional indemnity insurance aims to protect a business or professional's reputation and finances.
Here is a list of small or large businesses/professionals/consultants that can benefit from this insurance:
Accountants that offer tax advice
CIOs or CTOs that supervise the risk management of any business
Graphic designers that provide design
IT specialists who install software
Engineers and Architects in designing/developing construction
Fitness instructors that teach exercises
IT Contractors such as business analysts, IT project managers, or IT hardware engineers
Other professionals/businesses that offer paid professional advice/ opinion include Healthcare Professionals, Management Consultants, Estate Agents, etc.
4. What Is Professional Indemnity Insurance In Construction?
Construction Professional Indemnity is also called Design and Construct Professional Indemnity.
This policy safeguards contractors and sub-contracted specialists against faulty work or design accusations.
5. What Is Professional Indemnity Insurance For Nurses?
Professional indemnity insurance is a mandatory requirement for Australian nurses to meet the Nursing and Midwifery Board of Australia registration standard to practice in Australia.
This insurance safeguards them against litigation expenses and compensation claims that could result due to their professional services or advice.
6. What Can Result In A Claim?
If a client claims a mistake, resulting in a monetary loss, they have the right to take legal action to recover the loss.
Here are the possible grounds on which you can claim under the policy:
Negligence in offering professional services
Legal costs to defend actions concerning paid services
Failing to provide assured services
Being neglectful in professional services
Providing careless, unfinished, or improper work
Professional indemnity insurance pays for your legal defence and judgments/ settlements (up to specified policy limits) that you or your business may require in such a case.
In all the above cases, having professional indemnity insurance offers mental peace and the protection your business deserves.
7. Do I Need Professional Indemnity Insurance As An Employee?
Professional Indemnity Insurance is necessary for all businesses and employees who give advice or service to their clients.
For example, you need this insurance if you are a personal trainer advising clients about diet, fitness, and exercise or a real estate agent selling a house.
This insurance covers not just your business but also employee, associates, director, partners, principals, or a related entity. At the same time, they act within the scope of their responsibilities.
Many associations recommend industry-specific professional indemnity insurance as a legal requirement for advisory and consultancy jobs, including professional membership. So, you must understand your legal job responsibilities that differ for each state in Australia.
Even though Professional Indemnity insurance isn't compulsory in Australia, clients may want evidence that you have it. It assures them that your business is financially robust and capable of dealing with various situations.
8. What Does The Professional Indemnity Policy Cover?
Depending on the policy you select, it covers the following:
Claims investigation expenses
Legal and court fee
Cost of damages to documents, intellectual property, etc.
Court attendance costs
Unintentional defamation and violation costs
Retroactive and run-off cover
Claimant costs bestowed against you.
Public relations costs
Civil liabilities claim
Cover for claims related to the performance of professional services given by your consultants, subcontractors, contractors, or agents for which you are legally accountable.
9. What Does The Professional Indemnity Policy Not Cover?
Your Professional Indemnity insurance does not cover the following:
Physical injury due to violation of the professional services/advice of your business
Claims made before the commencement of the policy period
Corrective damages (when a magistrate finds a professional to be negligent)
Intentional damage that includes acts, omissions, or errors from the insured professional that has resulted in a loss, damage, or injury to a 3rd party
Any claim about asbestos
10. How Much Professional Indemnity Insurance Do I Need In Australia?
A Professional Indemnity Insurance policy cover can range from $250,000 to $10 million. To determine the right insurance coverage, you must evaluate the potential risks and costs to correct a mistake.
Here are some of the factors that could help you find the right cover:
What type and value of service/advice do you provide?
Statutory requirements for your occupation
Are there any membership requirements to join your professional body?
What could be the assessment and legal charges of any action against your business?
Stage of business - When a company grows, improving your insurance is vital.
Insurance providers offer PI insurance for large and small businesses in various industries. Most PII policies begin at a minimum cover of $1 million.
However, it is up to you to decide the limit based on your business requirements, probable risks, and clients.
You can seek expert consultation from an insurance broker to find the best policy suiting your business or professional needs.
11. Can You Get Professional Indemnity Insurance From AAMI?
No. AAMI doesn't provide professional indemnity insurance. However, they can design it for specific professionals based on the needs of a business.
Click here if you are interested in getting an insurance quote.
12. How Much Does a Professional Indemnity Insurance Policy Cost?
No business is the same. Due to the varying business needs and operations, it becomes necessary to assess factors that will influence the cost of your policy.
Here are a few factors you should consider when deciding on the insurance cost:
What industry do you work in?
What type of services/ advice do you offer?
What is your business size?
What amount of coverage do you wish to have?
History of professional indemnity claims
You can find a free comparison tool online to determine the premium cost of buying a professional indemnity cover for your needs.
13. Professional Indemnity Vs Public Liability Insurance
Before explaining how these policies differ, let's first learn what public liability insurance is.
Public liability insurance covers the legal liability of businesses that frequently deals with visitors on the business premises.
Additionally, a business is responsible for safety if it sends employees such as a plumber or an electrician to do repair work on a customer's premises.
Public Liability Insurance covers a business against compensation and legal fees due to death, bodily injury, or property damage, caused to a third party linked to your business.
It covers the unforeseen events occurring within the policy period, even when lodging a claim after the policy expiry period.
Having now understood public liability insurance, let's look at how they differ from professional indemnity insurance.
Professional Indemnity only covers claims made against you for a paid service or advice you offer to your clients that results in monetary loss, damage, or injury to them.
On the other hand, public liability insurance offers financial assistance to cover the expenses linked to a third party's claim on property damage or personal injury on your business premises or due to products supplied or sold through your business.
For example, it protects the insured when slipping or getting injured on business premises.
Some professions, such as accountants, nurses, and real estate agents, need a specific limit of Professional Indemnity insurance to work in Australia. Contract-based professionals might require holding a minimum amount of PI insurance.
14. What Details Do You Need To Provide To Get A Policy Quote?
You need to submit the following detail to the insurer at the time of completing a quote:
The name and communication details of the proposer
The type of your business, as well as its services
Total number of employees in the business
Yearly revenue of the company and other financial information
Details of any past claims
It is vital to be elaborate and honest when providing the details to get the correct quotation for the cover. Failing to disclose any past claims can cause the cover to become void or limited.
15. What Is Professional Indemnity Insurance In NSW?
NRMA is New South Wales, Australia's best and leading insurance brand. With 90 years of experience, the company offers a wide range of insurance products to protect businesses.
They offer professional indemnity insurance to cover businesses for up to $1 million, $5 million, $10 million, or $20 million.
What it covers:
Accidental Breach of duty
Accidental Breach of disclosure or privacy
Accidental Breach of Business' Intellectual property
Loss or damage to your client's financial documents
Reputation repair after lodging a claim
Claims expenses incurred to investigate, defend and settle business claims (up to cover limit).
What it doesn't cover:
Claims or circumstances that exist before the start of your policy
Deliberate damage to a third party
Any contract-related obligations with a client
If your business becomes insolvent or bankrupt
A claim can have a substantial impact on your business. Professional Indemnity insurance is a saviour for claims against you or your business.
It is an investment that protects your professional business against defamation, litigation costs, and compensation. It ensures it keeps running for the long haul.
Useful Links to Explore: