Professional Indemnity Concepts
Is PI insurance mandatory?
PI insurance is mandatory for members of various professional bodies and certain contracts where the Principal specifies this coverage is required and usually a minimum liability sum insured is mandatory.
Do I have to be insured by a specific insurer?
Some professional bodies will require you to be insured with a specific insurer as part of a group scheme which is often tailored to the requirements of the body members. However, most firms will be able to choose their insurer but you should be aware that the range of insurers available will depend on the risk exposure profile of your business.
The highest risk firms, for example, may only have a choice of two or three insurers. The range of insurers available to you will also influenced by what is called the risk appetite of PI insurers as they tend to specialise in certain types of professional occupations and therefore offer more comprehensive cover suitable for those occupations and competitive pricing to attract their targeted risk profile clients.
This is why brokers play an important role in PI insurance because through their experience they know which insurers are likely to seek certain types of professionals and they ensure that the policy coverage suits the type of risk exposure as PI policies are very complex documents with lots of fine print exclusions.
What is the limit of indemnity?
This determines how much the policy will pay out in the event of a claim. A $1m limit of indemnity will pay out up to $1m in total (aggregate) or up to $1m for each and every claim depending on the cover selected.
What does ‘each and every claim’ mean?
‘Each and every claim’ means that your policy will pay up to the limit of indemnity covered on each claim you have in any one policy year. Aggregate means that your policy will only pay up to the limit of indemnity you are insured for regardless of how many claims you make in any one year.
What is an excess?
An excess represents the figure that you will contribute towards any settlement arising from a claim against your insurance policy. For example, if your policy has a $2,500 excess, your firm will have to pay the first $2,500 of any successful claim.
What is adequate and appropriate cover?
The following factors should be taken into consideration:
- Where available PII insurance should be purchased on an ‘each and every’ claim basis rather than an ‘aggregate’ basis. For some higher risk professions an ‘each and every’ claim policy may not be available.
- The policy coverage should be as comprehensive as possible, thus giving you and your clients as much protection as possible. As a minimum, you should ensure your policy is written on a full Civil Liability basis rather than just Negligence liability basis.
- The level of indemnity you buy must comply with any requirements laid down by your regulator or professional body and should be in line with reasonable client requirements. It should also take account of the maximum possible loss your business is likely to suffer. If, for example, you are routinely involved in projects or transactions where the total value exceeds $5m, then a limit of $500,000 is unlikely to be sufficient.
- The policy should cover the work of past and present employees and any predecessor companies.
- For most professions, the policy should be ‘fully retroactive’ to cover previous activities not yet reported.
Your insurance broker can advise you about these various factors to ensure you have the right coverage.
What does ‘full Civil Liability’ mean?
Civil liability cover extends to any liability claim brought against you in a civil court. Cover is not provided for claims brought against you in a criminal court. Civil Liability cover is more comprehensive than just Negligence Liability cover which is often sold.
What does ‘fully retroactive’ mean?
A ‘fully retroactive’ policy will include liabilities arising from all work carried out by the firm since establishment date including work done by all past and present partners and/or directors, members and employees will be covered providing the policy conditions are met.
What is ‘claims made’ basis?
PI policies work on a ‘claims made basis’. This means the policy covers claims that are first made against the insured during the period of insurance regardless of when the act occurred.
How much does PI cost?
Ultimately it will vary from firm to firm and will be impacted by a range of factors from the type of work done, to turnover, to the limit of indemnity required. Broadly speaking, PI premiums are calculated by allocating a premium rate to each discipline undertaken by a business, according to the risk associated with that discipline. The higher the perceived risk, the higher the premium rate.
How does the quote process work?
When you take out or renew PI, you will always have to provide information on your business which will include an overview of the work you undertake and the turnover generated and/or forecast.
You generally submit this information to your broker on a proposal form which may be completed either electronically or in hard copy. You may also be required to submit additional information to that required in the proposal form, for example start-up law firms will be required to submit CVs for all partners/ directors and a business plan.
It is important that you respond accurately to any requests for information about your business. Failure to do so may result in your policy being cancelled or a refusal by insurers to settle a claim.
The information you provide will then be used by brokers to source quotes from PI specialist Insurers. The length of time it takes to secure quotes will vary according to the complexity of the business and the nature of the work undertaken. For smaller firms operating in low risk areas, it may be possible to complete the entire process (quote through to cover commencing) in as little as a few days but the process can take as long as three months for more complex and large turnover businesses.
With over 40 years experience providing professional advice and services to business enterprises looking to purchase insurance, Donnellys understand the needs of Adelaide businesses.
For further information or enquiries about Professional Indemnity insurance Adelaide, contact Donnellys today.Contact Donnellys Insurance