What to look for in professional indemnity cover as an expert
Regardless of the type of business you run – whether you’re a mortgage broker, graphic designer, beautician, acupuncturist or something completely different – if clients come to you for your expert advice, service or design, then professional indemnity exposure poses a significant risk for you. In fact, professional indemnity (PI) exposure often goes unnoticed or misunderstood, which is why it’s crucial that your consider your PI risks so that you can put the right measures in place to help protect yourself, your livelihood and your business.
What is PI exposure?
Professional indemnity exposure exists across a wide range of industries, including legal, accounting, consulting, architecture, engineering and allied health where professionals are sought for their expertise.
As someone who is paid for their expertise, you are likely to be bound by a professional standard. If you fail to meet the obligations expected of you, this can result in an error, omission, breach of duty or negligence.
The risks and consequences of PI exposure
Your business could be exposed to professional indemnity risk in a number of ways, for example, by providing incorrect advice, inadequate documentation, software errors, breaches of confidentiality, and failing to meet contractual obligations. Furthermore, failing to manage this risk can have severe consequences for your business including financial loss, damage to your reputation and lengthy legal disputes.
It’s important to note that if you represent a client in any way, you may also be held liable alongside your client.
In one example[1], a managing agent and landlord of a rental property were sued by a tenant who had fallen a number of metres to the ground after a stairway handrail gave way. Their injuries were so severe, a full recovery was unlikely.
Fortunately, the liability exposure of the landlord’s estate agent and the landlord was limited, as investigations revealed a handyman had performed unsatisfactory repairs to the balustrade shortly before the incident, and the handyman was also insured. The claim was ultimately settled at mediation for $380,000 all-inclusive with the real estate agent and landlord each contributing $40,000 to the settlement, in addition to their substantial defence costs.
Ways to manage your PI risk
Consider the following strategies for managing your business’s professional indemnity exposure.
1. Check contracts carefully
It’s essential you review any contracts or agreement documents carefully before you agree to take on work to ensure they align with your business risk appetite, so you can be sure your business is able to carry the risk, and manage it if required. It’s a good idea to seek legal advice when drafting or reviewing contracts.
2. Keep good documentation and records
It’s crucial that you maintain accurate and detailed records of client interactions, project specifications, changes and outcomes. This anecdotal documentation can serve as evidence in case of any disputes or claims, and you need to defend yourself.
3. Conduct ongoing risk assessments
Every year, take some time to conduct a thorough evaluation of your operations to identify potential areas where errors or negligence could occur. In your assessment, you should consider the nature of the services you provide, how you interact with clients, any contractual obligations and any industry-specific regulatory requirements that apply.
Also put reminders in place to ensure you regularly review your business operations and processes to identify potential new areas of exposure.
4. Maintain your professional standards
It’s important that you and your employees stay up to date with industry standards, best practices and emerging risks.
You can help minimise the likelihood of errors or negligence by:
- Maintaining high professional standards
- Investing in ongoing training and development for yourself and any staff
- Regularly reviewing and updating processes, policies and procedures to align them to best practice.
5. Communicate with clients
Open and transparent communication with clients is vital to managing expectations and quickly addressing any potential issues. Regularly updating clients about your progress on projects, potential risks and limitations can help foster trust and mitigate misunderstandings.
6. Take out insurance coverage
Professional indemnity insurance can help cover the cost of legal fees and expenses involved in defending a claim, as well as any compensation payable. If you’re found to be responsible for causing financial loss to your client because of negligent advice or services you’ve provided, having PI insurance in place will be your best defence.
To ensure you obtain the right cover, you’ll need to accurately assess your business’s professional indemnity exposure. Consider working with an insurance broker with specialist knowledge in professional services occupations who understands your business. They can help you assess your business risk, and identify appropriate coverage limits, policy terms and exclusions that align with your specific risk profile.
Is professional indemnity insurance a regulatory requirement?
Some occupations are required to have PI insurance in order to operate, but it varies from state to state. Some examples include accountants, architects and draftsmen, financial advisers, mortgage brokers, solicitors, and even some real estate agents.
However, you might also be required to have PI cover as part of your contractual obligation to a client. It can be reassuring to a client to know that you have adequate protection in place if your advice or service fails, or you make an error or mistake.
By prioritising your professional indemnity protection, you can enhance your business’s resilience and secure a stronger foundation for future growth.
[1] November 2021, AIG, ProfessionalEdge – Keep your edge with AIG: A simple and dynamic professional indemnity guide. Example republished with AIG’s permission.
