Professional Indemnity insurance (often referred to as PI insurance) is a specific type of insurance cover for individuals or businesses that offer professional advice, services or designs as part of their business. PI insurance covers the insured against claims of professional negligence, breach of confidentiality and other errors. A PI insurance policy will cover the costs associated with legal fees, and any compensation due if liability is proven.


Professional Indemnity insurance protects businesses against allegations, whether they are proven to be liable or not. If a client accuses a business or professional of incorrect advice or designs which lead to financial loss or bodily injury, PI insurance protects the insured from high associated legal costs.


You may be wondering how Professional Indemnity insurance works, and if you really need it. Here’s some things to consider when it comes to protecting your business with PI insurance:


When is Professional Indemnity insurance required?

It’s worth noting that in some industries, PI insurance is mandatory. Some professionals such as doctors, lawyers and real estate agents are required to have PI cover in place. In these cases, it’s important to make sure you keep your policy up to date.


Professionals that should consider PI insurance

In other industries, PI insurance isn’t a legal requirement, but it’s definitely recommended. If you are a professional that offers advice, professional services or designs, it’s likely you’d benefit from having a PI policy in place, just in case. Though we like to think we all have the best intentions, sometimes mistakes can happen, or allegations can be brought against you.


Such professionals that should consider a PI policy include architects, migration agents, IT professionals, designers, fitness professionals and business consultants. This is not an exhaustive list by any means – if you want to protect your business against potential allegations (even ones that prove to be false), it’s best to be proactive and look into PI insurance now.


Some regulatory bodies or potential clients will ask you to sort PI insurance before working with you, or may choose to work with another business if you don’t have Professional Indemnity cover.


Why is PI insurance so important?

Allegations of negligence, or any legal action taken against you, can severely affect a business in many different ways. PI insurance can provide peace of mind, as you will know you are covered.


Financial support

Even before a verdict is handed down regarding liability, the legal fees associated with defending yourself and your business can be astronomical – many businesses, especially small businesses, will struggle to find the funds.


Without PI insurance, even if you are proven to be not liable against the allegations, the cost of the legal fees is still yours to bear. If you are found liable, the compensation you have to pay can be huge – out of reach for many businesses. With PI insurance, you have the peace of mind of knowing that you are covered against any legal claims or allegations made against you, whether you are found to be liable or not.


Professional reputation

Professional Indemnity insurance can also protect your professional reputation, ensuring you can keep trading in a successful business even after claims have been made against you. While it can be tempting to resolve the claims quickly to keep costs low, this can seem to outsiders as an admittance of guilt. If you have PI insurance, you can rest assured knowing you have the means to defend yourself against the allegations and save your professional reputation.


What else do I need to know about PI insurance?

There are a few different terms associated with Professional Indemnity insurance you should familiarise yourself with before undertaking a PI policy.


Any one claim policies

‘Any one claim’ policies provide cover up to the full covered limit for each claim during the period of insurance. This means if you have a $100,000 any one claim PI policy and you have two $80,000 claims made, both claims would be covered in full by your insurer, as they are both under the $100,000 limit.


Aggregate policies

‘Aggregate’ policies provide cover up to the full covered limit for all claims during the period of insurance. In this instance, if you have two $80,000 claims (for $160,000 total) and your aggregate PI policy limit is $100,000, only $100,000 will be covered by your insurer.


Claims made

Mostly, Professional Indemnity insurance policies are written as ‘claims made’ policies. This means cover is provided for claims which are made and notified to the insurer during the time of insurance. In this way, if a policy is cancelled or not renewed and cover runs out, any subsequent claim made (even if it occurred during the period of cover) will not be covered by that policy. Another reason that it’s so important to keep on top of renewing your PI policy!


What if my business closes?

If your business ceases trading (for example, if it closes down, is sold, or you retire), to protect against allegations of professional negligence being made later down the track, you should consider ‘run off’ cover. This will offer you peace of mind knowing you won’t have to fund any potential defences out of your own pocket should any Professional Indemnity claims arise after the cessation of your business.


If you’re ready to organise a Professional Indemnity policy or other business insurance, reach out to our professional brokers here at GSK Insurance. We are a highly experienced team of insurance brokers in Perth, ready to help you to ensure your business is protected against any future claims or allegations.


To get a competitive quote for Professional Indemnity insurance in Perth, contact our experienced GSK Insurance brokers today.

November 30, 2017

By Graham Knight

Founder and Managing Director of GSK Insurance (established in 1981). Graham draws upon more than 50 years’ experience in the insurance industry, working in both insurance and broking across various private, public and government sectors in Australia.

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