As a business owner, there’s no doubt you work hard to offer the best service or advice to your clients. But, mistakes can happen (even to the best of us) and it can be pretty costly. This is where professional indemnity insurance comes in handy.
Here’s an example — you’re a real estate agent and purchasing a house on behalf of a client. Whether it’s incorrect advice or loss of client documentation, an unintentional mistake might cost your client a whole lot of money and you could end up getting sued. This is where your professional indemnity insurance policy can help cover the cost of claims made against you.
Needless to say, it’s always a good idea to have a plan ready if something goes wrong. Below, we’ve put together a simple guide on professional indemnity insurance in Australia including what it is, what’s covered, and whether you need it.
What is professional indemnity insurance?
Professional indemnity insurance is a type of insurance designed to protect businesses who provide professional advice or services to clients. It covers claims made against a business by clients or other third parties for damages, injury, or loss, arising from acts, omissions, or breaches of professional duty. It helps cover the hefty costs of legal action taken against your business as well as the associated fees and damages. So basically, the goal of professional indemnity insurance is to ease the impact of any litigation against your business.
Do I need professional indemnity insurance in Australia?
If your business gives out professional advice, makes decisions on behalf of, or provides services to clients, it’s a good idea to consider taking out professional indemnity insurance. It can help prevent an unintentional mistake from costing your business. Even if it’s unfounded, a claim made against you might not only damage the reputation of your business but also cause significant financial losses. This can lead to bankruptcy or insolvency.
Professional indemnity insurance can cover you for damages, claims investigations, and public relations consultants. Along with providing funds, your insurer can have the expertise to deal with claims as well as access to solicitors who can legally defend you.
It’s important to note some professions often require you to take out professional indemnity insurance. For example, the Nursing and Midwifery Board of Australia requires all enrolled nurses, registered nurses, and midwives to hold a minimum standard of professional indemnity insurance. Other professions that might require it include:
- Accountants
- Architects and designers
- BAS agents
- Consultants
- Engineers
- Finance and mortgage brokers
- IT professionals
- Journalists & writers
- Nurses
- Real estate agents
- Recruitment consultants
- Beauty, massage, and physiotherapists
- Psychologists
- Travel agents and tour operators
- Veterinarians
Important tip
What does professional indemnity insurance cover?
The type of business you have and its services can affect the level of cover you need. So, we’ve put together a list of what most policies cover:
| Breach of duty | Cover for claims against the policyholder for breach of duties including confidentiality, privacy, or fiduciary duty. |
|---|---|
| Cost of investigating claims | Covers the costs of investigating claims. |
| Contractual liability | Cover for claims against the policyholder for breach of a contractual agreement. |
| Intellectual property | Cover for claims against the policyholder for the unintentional infringement of intellectual property. |
| Libel or slander | Cover for claims against the policyholder for libel or slander. |
| Unintentional defamation | Unintentional defamatory comments made against or about the client by the policyholder. |
| Legal consultation | Cover for costs of legal consultation in the event of a claim. |
| Public relations | Cover for public relations expenses during the policy period. |
Tip
What professional indemnity insurance doesn’t cover
Before you take out professional indemnity insurance in Australia, it’s important to check the policy for any exclusions as well as the conditions required for a claim. Some policies will not cover claims as a result of the following:
✖ Accidental injury
✖ Asbestos
✖ Damages to property
✖ Dishonest, fraudulent, or criminal acts
✖ Employee injuries
✖ Fines and penalties
✖ Foreign jurisdiction
✖ Fraud
✖ Insolvency
✖ Intentional damage
What is the difference between professional indemnity and public liability?
Often, professional indemnity insurance and public liability insurance get confused. What they both have in common is they’re designed to protect you if someone claims your business or service caused damage or injury. The difference is, professional indemnity covers claims made against you because of the professional advice or service you provide to your clients. On the other hand, public liability is where you are found liable for the injury, loss, death, or property damage to a third party because of your business or its activities.
There is also what’s called product liability insurance, a type of insurance designed to cover the legal fees and compensation awarded in the event of your product causing harm, loss, or damage to your clients.
So, it’s super important to consider all types of insurance for your business and choose the right one for you. You can also look into getting coverage for more than one type of insurance under one policy.
How do I compare professional indemnity insurance policies?
Every business is different and the amount of cover you’ll need depends on many factors. This includes the nature of your business, how likely you’ll make a claim, and the minimum cover your occupation requires. The cost of a professional indemnity insurance policy also varies from business to business. It often depends on the size of your business and the industry you work in. Below, we’ve listed a few features to keep an eye out for when comparing professional indemnity insurance Australia policies:
| Claim conditions | What are the conditions for the payment of claims for different liabilities? Claim conditions include alteration to risk, cancellation/termination, and changes to the policy. |
|---|---|
| Limit of liability | What is the maximum amount of compensation paid for each claim? |
| Policy exclusions | What are the exclusions in the policy for when a claim will not be paid? Make sure to have a thorough understanding of the conditions for payment by the insurer. |
| Entities | Who is covered under the policy? This is applicable for businesses who want to take out cover for employees and other entities. |
| Additional cover | Does your policy offer additional cover options? Your business might require more than one type of insurance so it’s worth having a look at whether you can include them under one policy |
Remember
Want to learn more?
Here at Oiyo, we’re all about giving you the knowledge and tools to help make money a little less daunting. So if you want to learn more about income protection, there are plenty of useful reads to have a look at. Plus, we cover other types of insurance including life insurance, home insurance, health insurance, and more.
Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.