A comprehensive guide to professional indemnity insurance
- Professional indemnity insurance is an important part of a business’s risk management strategy
- It can offer protection for professionals and businesses from claims of negligence or breach of duty due to errors or omissions in their services or advice
- For brokers, it’s important to understand the full scope of activities conducted by a professional or business to ensure they have the right cover for their unique risks
What is a ‘professional’?
More than 3.5 million1 of Australia’s 13.8 million-strong workforce2 are classified as ‘professionals’, which includes occupations such as accountants, software programmers and marketers, to name a few.
It’s a broad term, but ‘professional’ occupations usually differ from other categories in that:
- their income is usually derived from holding specialist qualifications or knowledge, and
- their occupation is governed by a code of ethics.3
What is professional indemnity insurance?
Professional indemnity insurance can provide protection for businesses in professional fields, in the event that an allegation or claim is made against them for negligence or breach of duty. This may arise from an act, error or omission in the performance of their professional service or advice.
“For example, say an engineer designs a bridge which collapses due to issues with the design,” says Claire Kelly, Southern Region Manager of Financial Lines at QBE.
“If this were to happen, it could result in property damage and claims from individuals who can no longer work as a result of the injuries they’ve sustained, as well as the subsequent financial loss incurred to redesign and rebuild the bridge.”
In this situation, professional indemnity insurance could protect the engineer and their business against these claims and help cover expenses associated with the incident.
Who needs professional indemnity insurance?
Occupations that may require professional indemnity insurance can be broadly divided into three categories:
- Professional services, for example, accountants, insurance brokers and PR consultants
- Building services, for example, architects, surveyors and real estate agents
- Personal services, for example, travel agents, fitness instructors and private investigators
Additionally, there are some businesses and professionals operating within emerging sectors that may also require professional indemnity cover, including sustainability and ESG (Environmental, Social and Governance) professionals, or those working in data analytics or digital marketing.
“Sustainability and climate change are a huge global focus and there are many professionals operating in this space. An example of professions in this sector include ESG consultants or energy efficiency experts, who might advise organisations on how to reduce carbon emissions” says Kelly.
What does a professional indemnity insurance policy cover?
Professional indemnity insurance generally covers claims across three major areas of exposure – statutory liability, negligent misstatement or breach of duty.
This is a legal term which broadly means that individuals or entities conducting a business must comply with the responsibilities and obligations imposed on them at law. If they fail to do so, they may be held legally accountable or liable for any violations or breaches of that law.
“An example of this would be Australian Consumer Law, which imposes certain responsibilities on businesses and individuals,” says Kelly.
This refers to a statement of fact, advice, or opinion made in a business context that is inaccurate or misleading.
“For example, an underwriter would need to ensure there’s nothing misleading in the exclusions or terms and conditions they provide in a quote to a customer,” says Kelly.
Breach of duty of care
This relates to negligent or careless conduct, or a failure to act, by a person who owes a duty of care to another.
“For instance, an accountant gives tax advice to a customer but fails to advise them of something that someone in their profession would be reasonably expected to know,” says Kelly.
What are some key professional indemnity considerations for brokers?
There are many things to consider when assessing your customers needs to ensure they have the right level of coverage.
Professional indemnity policies will usually only cover the person(s) or entity specified in the schedule. It’s important to ensure the correct legal entity name is listed, not just a trading name.
The policy should clearly state the profession conducted by the insured, in addition to any past services they have offered or new activities that they may consider introducing.
Under a professional indemnity policy where a retroactive date has been specified in the policy schedule, limited retroactive cover has been provided. This means that the insured is covered for conduct of the specified profession arising from acts, errors or commissions committed or alleged to be committed after the retroactive date. Unlimited retroactive cover is the preferred option in many circumstances.
Contractors and consultants
Consider how the business uses contractors and consultants and if they are covered by the policy. Some policies will cover contractors and consultants, others won’t – so this is important to check.
Are there any restrictions based on where the business’ work is conducted? If the business has income from overseas, ensure you understand on what basis the cover is provided.
Ensure you’re familiar with any exclusions and jurisdictional limits in the policy. For example, if your customer provides services that could result in a bodily injury, does the policy have a bodily injury limitation?
Professional indemnity insurance and risk management
Managing risk is a key element of any business strategy, and insurance can act as a safety net should things go wrong.
The first step in developing a strong risk management plan for a business is understanding the potential challenges it may encounter. Brokers can assist by offering a risk analysis to pinpoint challenges and arrange appropriate coverage.
“An effective risk management system will enable clients to identify their risks, assess them, treat and rectify, and promote continuous improvement,” says Meg Purgacz, Senior Underwriter, Financial Lines at QBE.
“Using a risk management framework should be front of mind for customers – it can really help their business operate to its full potential. Professional indemnity cover is there as a fail-safe mechanism to assist and protect your customers should an unforeseen issue arise.”
How can we help you?
QBE offers professional indemnity cover for big and small businesses. Visit our Professional Indemnity insurance webpage, or contact your QBE Partnership Manager or your broker for more information.
1 Australian Jobs Report 2022 – https://cica.org.au/wp-content/uploads/2022-Australian-Jobs-Report.pdf
2 ABS Employment and Unemployment Statistics February 2023 – https://www.abs.gov.au/statistics/labour/employment-and-unemployment/potential-workers/feb-2023
3 Australian Council of Professions – https://www.professions.org.au/what-is-a-professional