Building and operating a business of any size is hard work. As a business owner, it is important to be aware of the potential that, at any time, an unhappy client or other third-party, could challenge the business you’ve invested so much in, with a claim of alleged negligence, breach of duty or damages.
It is also important to appreciate that mistakes and accidents happen. For example, a situation may arise where your firm is alleged to have provided inaccurate advice to a client, omitted information or made an honest error of judgement.
Regardless of whether third-party allegations are true, or whether incidents occur as the result of honest mistakes, legal proceedings are a headache no business needs. Compensation claims have potential to take a lot of time and money to resolve and, depending on the nature of the allegation, can do untold damage to your business brand too.
What is professional indemnity insurance?
Professional indemnity insurance is designed specifically to protect businesses that provide professional services to clients. This coverage type protects your business and employees against financial losses arising from an act, omission or breach of professional duty in delivering your business services.
Even if a claim by a third party that your business made a mistake, misrepresentation or misinterpretation isn’t actually true, professional indemnity insurance can still protect your assets, finances and brand reputation against allegations of negligence.
Examples of professional indemnity insurance in practice include protection for inaccurate advice delivered by a lawyer, a medical procedure that doesn’t go according to plan or an architectural design that results in a construction error.
Core components of professional indemnity insurance
Professional indemnity insurance packages typically deliver two benefit components. The first component aims to cover any legal costs associated with defending a claim. The second component covers the expense of any compensation you may be required to pay wronged or injured parties, including their legal expenses, if a claim against your business is found to be true.
There are standard professional indemnity insurance packages available, and specialised options to cover particular professional work types. For example, lawyers tend to bear a higher risk than many other professions for the quality of advice delivered. Negligent legal advice can have devastating consequences for clients and can lead to bankruptcy for a legal firm. Professional indemnity insurance can be tailored to provide specific protection for lawyers against claims brought against them for anything from providing incorrect advice or loss of key documents through to failure to follow client instructions and breaching fair trading laws.
Who needs professional indemnity insurance?
Whatever service your business delivers, you have an obligation to provide that service to the highest possible standard, and absolutely to the standard you commit to clients.
When client expectations are not met, or damages or injuries occur as a result of the service being delivered, every business is at risk for litigation.
While every business carries some level of risk, professional indemnity insurance cover is necessary for:
- any business offering professional advice or services to clients. Examples include doctors, lawyers, architects, entertainers, providers of accommodation facilities, tour or activity operators, accountants, public relations professionals, tax agents and engineers.
- contractors who work for organisations, including the government, where professional indemnity insurance is a mandatory condition of the contract.
Do I need a broker?
When selecting any kind of insurance cover there is a wealth of information easily available online. If you have the knowledge, time and patience to sift through that information on competing professional indemnity packages, it is absolutely possible to identify the cover that meets your needs. But if you don’t have the experience, time or patience to compare packages, a broker can help.
The role of an insurance broker is to assess your particular circumstances and then review a number of policy options with you. The broker will explain the detail around each policy to help you understand the relative benefits, conditions, exclusions and cost.
Once you’ve identified the professional indemnity policy that is most relevant for you, the broker will assist you in purchasing the policy. If you ever need to make a claim, the broker will step you through the process.
Cost is sometimes a consideration when engaging a broker. Our broker network is transparent on pricing so you understand, up-front, what the expense will be to you. And, while expense management is relevant for every company - when litigation arises - many businesses feel that the cost of having the right insurance coverage in place is suddenly priceless.
Professional indemnity insurance is an essential part of delivering professional services or advice-based business. Call a NZbrokers member to explore how professional indemnity insurance can give your business a comprehensive safety net to feel confident about delivering services and advice.