Do You Need It If You’re Not a ‘Professional’?
When you hear the words Professional Indemnity Insurance, who comes to mind?
Perhaps a doctor, lawyer, accountant or architect.
But what about a consultant? A bookkeeper? An IT specialist? A designer? A project manager? Or even a tradesperson who regularly recommends particular solutions to customers?
The interesting thing about Professional Indemnity Insurance is that the word “professional” can sometimes make businesses assume it doesn’t apply to them.
If your Tasmanian business provides advice, recommendations or professional services that another person or business relies upon, it may be worth finding out whether Professional Indemnity Insurance should form part of your business protection.
What Does Professional Indemnity Insurance Cover?
Professional Indemnity — commonly called PI insurance — is designed to provide protection when a client alleges they have suffered a loss because of your professional advice or services.
That could potentially involve an error, an omission, professional negligence or a breach of professional duty.
For example, imagine a consultant recommends a particular course of action to a client. The client follows that recommendation and later claims it caused their business a substantial financial loss.
Even if the consultant believes the advice was reasonable, defending the allegation could involve legal expenses as well as the possibility of damages if the claim succeeds.
Professional Indemnity Insurance may provide cover for certain legal costs and claims for damages, subject to the terms, conditions and exclusions of the individual policy.
You Don’t Necessarily Need a Suit and Tie
One of the biggest misconceptions about Professional Indemnity Insurance is that it is only relevant to the traditional professions.
That isn’t necessarily the case.
Plenty of modern businesses provide knowledge, recommendations or specialist services as an important part of what they sell.
Depending on the work they perform, this could include:
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- consultants
- bookkeepers
- designers
- IT professionals
- marketing agencies
- engineers
- project managers
- business advisers
- some contractors and tradespeople.
The important question isn’t necessarily “Am I a professional?”
A better question may be:
“Could a client suffer a financial loss because of something I advised, recommended, designed or failed to do?”
If the answer is yes, there may be a professional liability exposure worth discussing with your insurance broker.
Sometimes It’s What You Didn’t Say
Here’s another aspect of Professional Indemnity Insurance that can catch business owners by surprise.
A dispute doesn’t always arise because someone gave the wrong advice.
Sometimes the allegation can be that appropriate advice wasn’t given at all.
A client might argue that, given your expertise and the services you were engaged to provide, you should reasonably have identified a problem, warned them about a risk or recommended another course of action.
That makes professional liability considerably broader than simply making an obvious mistake.
Professional Indemnity Is Different From Public Liability
It’s also easy to confuse Professional Indemnity with Public Liability Insurance.
As a general distinction, Public Liability Insurance is concerned with claims involving injury to another person or damage to their property arising from your business activities.
Professional Indemnity is concerned with claims arising from the professional services or advice you provide.
Depending on what your business does, you may have exposures in both areas.
There’s Another Important Detail: When the Claim Is Made
Professional Indemnity policies are commonly written on a “claims made” basis.
That makes continuity of cover particularly important.
A problem resulting from advice provided today may not become apparent until months — or even years — later. The timing of the claim, the period of insurance and the policy’s retroactive date can therefore become very important.
It is one reason businesses shouldn’t assume that cancelling a PI policy means they never need to think about their previous work again.
Not Every Professional Indemnity Policy Is the Same
Like most business insurance, PI policies can contain different limits, conditions, exclusions and extensions.
The appropriate cover can also depend heavily on exactly what your business does.
A marketing consultant doesn’t face exactly the same professional risks as an engineer. An IT provider doesn’t face exactly the same risks as a bookkeeper.
That’s where describing your business accurately becomes particularly important.
For some professions, Professional Indemnity Insurance may be compulsory or required by a professional association, licence or contractual arrangement.
The Australian Government provides further information about Professional Indemnity and other forms of business insurance through its business.gov.au website.
Does Your Tasmanian Business Need Professional Indemnity Insurance?
For some professions, Professional Indemnity Insurance may be compulsory or required by a professional association, licence or contractual arrangement.
For many other businesses, however, the decision comes down to understanding the risks associated with the advice and services they provide.
If you’re uncertain whether your work creates a professional liability exposure, speaking with a local insurance broker in Tasmania can help you understand the risks and the type of cover that may be appropriate.
At RSM Tasmania Insurance Brokers, we can take the time to understand what your business actually does and help you explore insurance options suited to your circumstances.
Because you don’t necessarily need the word “professional” in your job title to face a professional risk.
Remember, this article is general in nature and doesn’t take into account your specific objectives, financial situation, or needs. For advice tailored to your circumstances, have a chat with us at RSM Tasmania Insurance Brokers Hobart.
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