Our guide to Professional Indemnity Insurance covers essential information, including what it protects, what it excludes, and common scenarios that may lead to a claim.
What is Professional Indemnity Insurance?
Professional Indemnity Insurance safeguards your business financially if a claim of negligence or breach of duty is made against you. It provides protection in situations where a client may allege that you made an error, overlooked crucial information, misstated a fact, or were misunderstood during your work. If such a claim leads to financial loss for the client, they may take legal action to recover those losses.
In these cases, Professional Indemnity Insurance can protect your business’s assets and reputation while covering financial costs, allowing you to continue operating without the risk of financial or reputational damage.
Even if a claim is without merit, an unhappy client could still file a lawsuit. Professional Indemnity Insurance will cover legal defense costs as well as any judgments or settlements, up to the policy’s limits.
Who Needs Professional Indemnity Insurance?
This type of insurance is designed for businesses that provide professional advice, consulting, or services. Examples include architects, engineers, consultants, lawyers, accountants, and healthcare providers. These professions are particularly vulnerable to claims since mistakes or errors in advice or service could lead to significant financial losses for clients.
What Does Professional Indemnity Insurance Cover?
Professional Indemnity Insurance typically covers a range of risks, including:
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- Misleading or negligent advice
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- Breaches of professional duty
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- Disclosure or mishandling of confidential information
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- Defamation, libel, or slander accusations
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- Misplacement or damage to client documents
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- Intellectual property rights violations
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- Legal fees and defense costs
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- Costs associated with claims investigations and disciplinary proceedings
Some policies may also cover public relations expenses to manage your business’s reputation. For those in allied health, coverage may extend to bodily injury or illness claims directly related to your services.
Common Professional Indemnity Claims
Here are a few real-world examples of Professional Indemnity claims:
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- Bookkeeping Errors
A bookkeeper installed unfamiliar accounting software, resulting in errors that financially impacted a client. The client claimed $25,950 in damages, and the insurer paid the full amount.
- Bookkeeping Errors
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- Visa Application Mistake
A migration agent lodged an incorrect visa application for a client. To rectify the situation, the client had to briefly leave Australia to activate a new visa. The claim, nearly $10,000, covered the cost of the visa and the client’s flights, minus the retainer fee.
- Visa Application Mistake
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- Misunderstood Building Project
A quantity surveyor misinterpreted a building project’s specifications, leading to an inaccurate cost estimate. The project manager asked the surveyor to cover the cost difference, and the surveyor’s insurer settled the claim.
- Misunderstood Building Project
How Much Does Professional Indemnity Insurance Cost?
Based on our analysis, around 47.5% of small businesses pay between $51 and $100 per month for their Professional Indemnity Insurance, with an average cost of about $84 per month.
The cost of coverage depends on factors such as your profession, the size of your business, the risks involved in your services, and the amount of coverage you choose. For instance, IT consultants may pay different premiums than medical practitioners due to the distinct risks each profession faces. Higher-risk professions generally face higher premiums because of the potential for larger financial damages in claims.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au
