Even an unhappy email or phone call can become a claim.

What to do

• Notify your broker or insurer as soon as a complaint or concern is raised.
• Do not admit liability.
• Do not offer compensation or agree to fix the issue before seeking advice.
• Let your insurer or broker assess whether formal action is required.

Strong documentation is one of your best defences.

Keep copies of

• Contracts
• Emails
• Text messages
• Meeting and phone notes
• Photographs
• Follow-up confirmations after verbal discussions

Not all excesses work the same way, and the type you have can significantly affect what you pay during a claim.

• Cost-inclusive excess: You pay legal and claim-related costs until your excess is exhausted, meaning you could still pay your excess even if you successfully defend the claim.
• Cost-exclusive excess: You generally only pay the excess if the claim settles. If there is no settlement, you may not have to pay anything.

Many hidden costs come from contractual obligations rather than insurance itself.

Watch for

• Excessively high insurance limits
• Requirements to maintain cover for years after a project finishes
• Unlimited liability
• Indemnifying another party for their mistakes
• Waiving proportionate liability protections
• Guarantees or warranties that extend beyond normal legal responsibilities

Your insurance may not respond if you voluntarily accept responsibilities beyond common law.

Avoid agreeing to:

• Liability for another party’s actions
• Unlimited contractual obligations
• Unreasonable guarantees of outcomes

Where possible, negotiate contracts so each party remains responsible for its own liabilities.

Professional Indemnity is a claims-made policy.

This means claims can arise years after work was completed.

Consider

• Maintaining cover after retirement or closing your business.
• Understanding how long contracts require you to keep insurance.
• Reviewing runoff needs based on your business structure and exposure.

Premiums are influenced by the wider insurance market, not just your own business.

In a hard market

• Higher premiums
• Higher excesses
• More exclusions
• Reduced cover
• Fewer insurers competing

In a soft market

• Lower premiums
• Broader cover
• More competition

A claim history follows your business.

To minimise long-term impact

• Notify issues early.
• Defend unfounded claims rather than settling unnecessarily.
• Keep continuous cover.
• Preserve your retroactive date by avoiding policy lapses.

Use this as a quick annual review.

• Notify complaints immediately.
• Never admit liability before speaking with your broker or insurer.
• Keep written records of all client communications.
• Check whether your excess is cost-inclusive or cost-exclusive.
• Ensure you can fund your excess if needed.
• Review contracts for hidden liabilities.
• Confirm your cover limit matches your exposure.
• Maintain continuous cover and protect your retroactive date.
• Consider runoff cover before retiring or closing your business.

Welcome to everybody today for our, webinar that we’re running, which is beyond the premium. We are aiming to take you behind the curtain a little bit and try and demystify some, some maybe some misconceptions around professional indemnity insurance, and we’re very lucky to have some some special guests that I will introduce to you shortly.

A little bit of housekeeping. If you have questions, please put them in the, q and a box. We’ll get to them as we go, or we’ll make sure we have time at the end, assuming we don’t, well, assuming I don’t waffle on too much, and probably Raoul might be guilty of that, but, you get a you get a good feel for that. Don’t wanna throw him under the bus too much.

So, yes, before, before we go any further, I’m joined today by two wonderful guests.

Firstly, Yen Tran.

Yen specialises in professional indemnity and public liability claims and was recognised as one of the top young insurance professionals in ’23.

She practises as an insurance lawyer, and she specialises in professional indemnity and public liability. She’s admitted to the Supreme Court of Queensland and the High Court of Australia, and she brings extensive experience managing complex litigated claims across multiple jurisdictions.

So welcome to Yen, and thank you very much for joining us today.

Our other guest is the wonderful Raoul Basile. Hopefully, I’ve pronounced that correct. I think I pronounce it differently every time.

Raoul is the professional lines underwriting manager at Wadena Underwriting Agency. So, yes, he is the big dog. If you’ve got problems with Wadena, make sure you, air your grievances here. Just joking, but we might, we might get to that.

Raoul brings over thirty years experience, but I think it’s probably more like over eighty years experience, and a really good underwriter’s perspective to the panel. So he’s gonna offer insight into how professional indemnity risks are viewed from the insurer side.

He’s gonna help unpack what can influence PI terms, cover pricing, and some factors that businesses may not always see behind the scenes. So we are we are very lucky, to have Raoul join us today. And like a lot of underwriters, I think the the misconception is they just sit in basements and down deep, dark holes for the entirety of their life, but, that couldn’t be further from the truth, and, and Raoul is going to help demystify some of that. So welcome to, Raoul and Yen.

Before we get started, disclaimer. This is just general, information only. We’re not providing any legal advice or insurance advice. We are absolutely able to do that in a personalised setting, but everything in this, content is general in nature. So today’s discussion, I’ve kind of broken it down into into three parts, and I’m thinking that we’ll we’ll go through we’ll cover q and a as we go, but I really wanna touch on three things, and these are things that that I see as being some of the more confusing issues that sit behind professional indemnity and things that, you know, that the average business owner might not actually be aware of.

So we’re gonna go through the first one, and that’s claims. And this is a question that we get, asked a lot.

And often the, you know, the whole theme of what we’re gonna talk about is there’s more to insurance costs or business costs than just paying your premium.

So there’s immediate costs of professional indemnity matters, and I’ve got a list there, but you can see that the cost that you’re incurring straight away would be legal advice, expert reports, document collection or review, the time that you spend yourself on responding to matters, paying excesses, losses to your business because it’s taking you away from it, and then managing your reputation.

So I might I might just welcome Yen up if she’d be so kind.

Yen, you see you sit at the coalface of a lot of these professional indemnity matters.

Could you just talk to us about just generally the the process and and what’s kind of involved in that initial space in times of, you know, the interruption to people’s businesses, what the expectations are when you do have a have a claims issue.

Sure. No problems at all. Look. I think the the first and foremost that comes to mind with respect to claims, and even before you get claims, if someone just sends you an email or makes a call and, you know, expresses any discontent about the work that you provide or the service you’ve provided, You have plenty of costs that may impact your business, but first and foremost is the stress that comes with it.

Right? You’ve provided this service. You’ve thought you’ve done a great job, and now someone’s saying to you, well, I’m not happy with it. You’ve done the wrong thing, and now you’ve gotta pay me lots of money, or you’ve gotta fix this thing that you’ve done.

So the things that we see the most with that is the stress of how do I respond to that? What do I do about it?

What is the right thing to say in those circumstances? And from our perspective, we see that as the first port of call is the second you get anything along those lines, call your broker. Right? Let them know.

Call the insurer. Notify that thing whether or not it is a formal claim, demand, court document, letter, whatever it may be. Even if it’s just the slightest hint, it cannot hurt to notify someone and let us help you. From there, as Daniel’s presentation has shown, you can see that there are a bunch of steps that proceed from that notification.

It could initially be nothing at all. We might say to you, look, someone’s complained, but, realistically, there’s nothing to that. You just say to them, thanks very much. I’ll take that on board. Move on.

Otherwise, in more serious circumstances, there are steps as noted on the PowerPoint that we need to take, and that is usually to investigate things. Most importantly, beyond that beyond that notification is don’t admit to anything. Never admit to anything. Never offer to pay any money. Never offer to do anything until you’ve either spoken to your broker, one of us at Martello, or your insurer.

Wonderful. And I suppose the you know, when I talk to people about professional indemnity matters, you know, I always get, oh, you know what? I don’t really make mistakes because I’m really vigilant, and, you know, it’ll it’ll kinda never happen to me.

I think just to share something that my my father actually used to say to me, he spent decades handling motor claims.

When I was learning to drive, he would often remind me that there are plenty of people in the cemetery that had right of way. And I think the way that that applies in this situation, it doesn’t matter if you do everything right. You cannot control the actions, and you cannot predict what your clients may or may not do. And a lot of the time, it’s not rational. So trying to, you know, be an absolute oracle or a visionary and and predict what people will do, particularly in volatile situations where money’s involved, forget it. So I’m not suggesting, and I’m sure Yen would neither, that we teach that we treat all of our as criminals, but I think you need to approach with a with a healthy dose of skepticism and make sure that you’re you’re doing the right things to, you know, prevent and mitigate as as much as possible.

So just on the the claims, now this is this is something that that, Raoul, I might get you to talk about a little bit because I’ve got a nice little graph here just explaining the difference in excess. And I think a lot of people will look at an insurance policy and perhaps not understand that that one little word next to the excess can be significant amounts out of pocket. So could you just go through briefly and explain the concept of an exclusive versus an inclusive excess?

Absolutely. Just before we get onto that, Daniel, there is another expression that is used quite often.

You don’t have to have done anything wrong for someone to think you have.

And then, again, that comes back to you can control certain set of circumstances. You can’t control all the circumstances. And quite often, we do see claims come through which basically tryouts. You provided a professional service for someone.

I love your work. Here’s the bill. Oh, I don’t wanna pay that much. Oh, you’ve obviously done something wrong.

What are they trying to do? They’re trying to get you to go, fine. I’ll reduce the bill or I can’t I won’t charge you at all. You know, a lot of time it’s a trial, but it still, you know, it still needs to be responded to.

I wanna make one very important point before you touch on these these excesses, and that is for somebody who’s been underwriting for oh, it’s been a hundred and twenty years, wasn’t it, Daniel?

At least.

At at at least. When insurance was first invented, I’ve been underwriting for quite some time. I will never ever penalise the client for notifying of a client. I won’t do it.

Why? Because, basically, the biggest issue that you have is yeah. You might be a great architect, might be a great engineer, you’re a fantastic doctor, you’re the best lawyer that that’s ever graduated from law school, but you may not be an insurance specialist. I don’t go out and perform open heart surgery.

I know how to use a pocket knife, but I’m not a doctor. And so the best thing I can do is I also don’t have as a professional person, I don’t have time to go out and, you know, service my own car. I’ll pay a professional to do that. You pay a premium to have a policy an insurance policy.

If you become aware of something that could give rise to a client, notify your broker or notify your insurance company, and they could look after it for you. That’s why you pay your premium. Alright? I will never increase someone’s premium because I’ve notified of a claim.

Okay? I won’t do it. Why? Because we wanna encourage you if you’re in that circumstance, in that situation, we want you to notify of it.

Because what can happen sometimes is Martello Law, they’re qualified lawyers. What they could do sometimes is take this matter that on face value could be very, very little and sort it out before it explodes into a multimillion dollar claim and you’re getting dragged before a judge. You know, prevention’s better than cure? Absolutely.

So take that mentality.

If there is a claim, you may need to pay a deductible. What I would try and do here is take jargon out of what we’re talking about.

Your profession’s got a particular set of words that you use with specific meanings, so do we. Sometimes those words don’t mean the same thing. So let’s try and check the jargon out of it and speak simply.

If you have a client, you may need to pay a certain amount towards that client, usually referred to as your excess. You probably have one on your car. You probably have one on your home.

K? But there’s different types of excesses. Cost inclusive, cost exclusive. What does that mean? I hear you ask. It’s a great question.

Cost inclusive deductible means this is very, very important, and I’m just gonna do a bit of a free shameless plug here for for, you know, underwriting my title.

Generally, how it works in the insurance industry for professional indemnity, if you have a claim, cost inclusive, cost exclusive. When your claim is being managed, there could be costs involved. The lawyers, for example, a lot of claims are not handled by the insurance companies themselves. They outsource it to law firms.

Those law firms, from the minute they pick up the phone or the minute they respond on an email or open an email, they’re charging you. Alright? The minute you get into a cab, that meter’s running. K.

So cost inclusive means you are paying your excess, might be
a thousand dollars, might be $2,000, might be $10,000, whatever the case is.

You’re paying right from the word go up until the time where that $10,000 is used. You’re basically paying for the first $10,000 of your claim. Okay? Give you an idea.

Someone brings a claim against you for $10,000. The insurer gets in, and they they you got a cost inclusive access, and they get, you know, internal reports and all that kind of stuff. And in the end, they go, well, we’ve racked up $15,000 to confirm that you’ve done nothing wrong. Give us $10,000.

That’s your deductible. To which you go, that’s great. I’ve done nothing wrong. Here’s my $10,000.

To which you’re pretty sitting there going, that was really an implicit experience.

So the other option is you have a cost exclusive deductible. The cost exclusive deductible generally means you don’t pay anything until such time as your claim settles. So it might be a case of you got that 10,000 deduct dollar deductible, same example, That $15,000 in cost is incurred by the solicitors because, you know, they gotta have lunch too. They gotta pay someone’s gotta pay for that. That’s you.

So at the end, they spent that $15,000. You’ve done nothing wrong. You’re successfully defended. How much do you pay?

You don’t.

Why? Because the deductible, that excess amount, only applies to the costs. There’s been no settlement.

Sorry. The deductible does not apply to the cost. There’s been no settlement, only costs your deductible only applies in the event of a settlement, you pay nothing.

That’s your difference. If possible, try for a cost exclusive deductible. Your broker well, I know Daniel specifically will always try and get you a cost exclusive deductible. It’s actually better for you to have that from a consumer perspective. Why? Less chance. You’re gonna have to put your hand in your pocket.

Yeah. And I know everybody’s thinking, well, jeez, I hope my policies cost exclusive.

And, like Ralph said, wherever possible, we always aim to get that. But, you know, depending on your occupation, depending on the insurer that does it, some insurers just won’t offer it. Structural engineering, for example, most of the insurers that cover structural engineering, they will just have an inclusive excess. So, real really important to consider that. So what what actually happens when you make a claim? And I don’t wanna get too, too caught up with this because we’ve got lots of good content to get through.

So like Yen like Yen said that’s you, Raoul. Like Yen said, notify your broker or your insurer as soon as you become aware.

Someone like Yen, if you if you happen to deal with her or whoever the lawyer is representing the issue, will request information, relevant where that’s happened. Now, Yen, we’re talking about things like contracts, emails, text messages. What sort of extent do we go to when when clients need to provide information?

I hate to be super broad, but the answer is everything related to that matter.

I was expecting that.

Look. As Daniel said, certainly contracts are very important between, you know, yourselves and your clients, yourselves and any contractors, other parties, any emails, letters, phone note.

Ideally, if a lot of your dealings are by way of phone, you have taken notes, you followed up in an email or a message, anything that you can provide us in writing, will certainly assist the claim. And photographs. Absolutely photographs if you happen to have anything related to that particular claim as well.

The the the strength of your defence would be dictated by the amount of information you have and that you can And it’s and it’s not just okay to say, oh, you know, like, we chatted about this. And, yeah, yeah, they knew that because I mentioned it in passing. It’s it’s not what it’s what you can prove, not what you sort of say happens. And I think it’s worth noting that I would say majority of matters, you know, not ending up in in litigation. Litigation’s quite expensive, so I’d say most most types of issues would be resolved in some sort of commercial or it’s a go away and, you know, nothing to see here. So, you know, getting to full blown litigation, I would say, is is more the exception than the rule.

Jen, would you agree with that?

Absolutely. Most of the claims we see can be dealt with just by an exchange of correspondence from Martello and either the claimant directly. That might be one of your clients, that might be a contractor that you’ve used, or solicitors. And as Daniel said, the strength of your defence does depend on how much information you can give.

For example, you know, I might say to Raoul, oh, yes. We had a conversation. He’s agreed to something. He might turn around and say, no.

No. No. I never agreed to that. Now you’ve gone off and done it. I never provided you those instructions.

That doesn’t necessarily hold up very well if you have to defend a claim saying he said, she said. It is much better if I’ve had this conversation with Raoul. I follow-up in an email and I say, hey, Raoul. Thanks for that chat just now.

I’m gonna go ahead and do this as per your instruction. He then has the opportunity to say, that’s not what I’ve told you. Or if he doesn’t reply at all, I’ve at least got that trail in writing where I’ve said that, and I can then say, well, you never objected to it, or you never came back and told me that wasn’t correct. So that certainly helps your position.

Although I do understand there are plenty of professions out there where a lot of your dealings are done verbally. Wherever you can, if it is done verbally, do follow-up, whether it’s a message, an email, or even if you just take a note on your phone after that call.

Wonderful.

So we’re gonna like, why does this all matter? And I know that we we just need to land the plane on why why this all matters because we’ve talked about claims, but claims are probably one of the biggest impacts from a cost point of view both in the initial phase of, you know, paying your excess, time out of your business, stress, sleepless lights, missing opportunities, you know, taking up staff times, but there’s also the the direct financial cost of claims on your insurance premiums at renewal. And I know Raoul just mentioned there that, you know, if you notify, it goes nowhere. He’s not going to to penalise you.

But in the situation where claims have been made, settlements have been agreed to, and costs have been occurred incurred, you can reasonably expect that your that your premium will increase. And I think the the biggest questions that we get are okay.

How much? How much is it?

So, Raoul, just talk to us briefly about your process when you look at accounts with claims and and and what you’re factoring in in terms of changing premiums and rates and whatnot?

Probably one of the most important things to look at there is that there are instances, quite a number of instances where we actually don’t increase the premium or increase deductibles for claims. There’s a lot of mitigating factors, a lot of sort of so a lot of moving parts, we’ve had instances where especially where people have done nothing wrong. The client’s been an absolute try on, and, yeah, we may have needed to to spend some money to sort things out. Just wanna make a very important point there.

With my total we and, you know, we work a little bit different to most insurance companies because as I said, most insurance companies have the lawyers outsource their claims to lawyers, and lawyers are charging for the moment they, you know, they answer the phone.

The business model, Wadena has is a little bit different. Marks, a lot of lawyers are in house claims service, and they don’t charge it at their internal costs.

So when they answer the phone or they send an email, they’re not charging for that. So very, very different from a normal law firm. So one of the things you’ll actually find is there’s two main parts to a claim. There’s the costs and there’s the settlement amount.

Now if the claim is successfully defended or nipped at the bud and never eventuates, there’s a settlement amount there, and a lot of the time, there’s no costs because Martell O’Brien law doesn’t charge out its own costs. So in that particular instance, you can have a claim that isn’t just a notification. It’s an actual claim, and we can resolve it for for a minimal amount or Nothing. Or for nothing.

Now that’s not gonna change your that’s gonna impact your your up excess your deductible. It’s not gonna increase your premiums, but we’ve also had situations where we’ve had clients where we’ve had to spend some money to indemnify them for claims matters, and they’ve done nothing wrong.

And it is obviously, it’s a trial, but we needed to to manage that situation for them, and we haven’t increased the premiums for those things. Just because you have a claim doesn’t mean you’re gonna get slapped with a massive increase in premium. So there’s a lot of different factors towards it. Now you may get a little bit of an increase in the deductible, or you may have a little bit of an increase in the premium. We try not to do both. You know, gotta try and be fair with these things.

We’re at fault, and, you know, there’s gonna be a little bit of a bit of contribution there. But we’re not at fault. We try as much as we possibly can to, obviously, to be fair, to be reasonable. We don’t wanna penalise people for you know, especially when they’ve done the right thing and get dragged into matters, especially where, you know, they’ve done nothing wrong and they don’t have any control over that situation. So we always try to be fair and reasonable with those sort of things, and it’s certainly not about trying to to gauge and and recover costs. But, But, again, we’re in that very wonderful position where much of our law doesn’t charge out for internal claims costs, and so the actual cost of the claim is significantly reduced.

And that really helps in the the setting of premiums and deductibles.

That also means your excess doesn’t apply to our legal fees for us defending you. So if there is a claim, whether it’s, you know, litigator or just a letter of demand, if we can get rid of it for absolutely nothing, haven’t needed expert evidence or a barrister or anything like that. Some of those things are absolutely necessary. But if they’re not, then you get out of it without any claims history as well as not paying your excess.

And just touching on that one point, so I do appreciate we are fairly short on time. Something that is very, very important and something that underwriters do look at, whether it’s me or whether it’s anybody else.

When you’re looking for professional indemnity cover, what the underwriters look for, we may touch on this further on anyway, is one of the things we look for apart from the occupational experience and the size of your company so we get an idea of you, you know, what you’re up to, is your claims history. Now there is nothing worse than having you’ve done something. You’ve done nothing wrong. You’ve done nothing wrong.

Someone sued you. Insurance paid it out, and you go, that’s great. I’ve gotta spend the rest of my insurance life saying we’ve got a $50,000 or a $100,000 claim against me that’s been paid out. We’re not even doing anything wrong.

And and that we’ve seen cases where sometimes the majority of that is legal costs. So that’s something else we look at too when we see the policies come through from new business perspective. If there’s claim amounts on there, what are they? Are they costs, settlement amounts?

Because if they’ve been with us, what would that difference be? And we take that into consideration when calculating premiums because had it been with us instead of someone else, those claims costs could have been significantly reduced or maybe not even there. So that’s also something we look at as well when determining how much we’re gonna charge for a premium. So claims can impact your policy, can impact your premium, and you you don’t want someone just to throw money and then come to make it go away if you’ve done nothing wrong because that just, a, damages reputation, b, pushes up your insurance costs, and, c, it leaves a really dirty taste in your mouth because you’ve done nothing wrong, and you still gotta clear a claims history for the rest of your insurance life.

And and it’s that that can be very rough.

Yeah. And I think it’s worth noting that just like people are different in the way that they do their business, insurance companies are different as well, the way that they view things. So not not everybody takes such a kind view as as as Rau does from an underwriting perspective. So, you know, you might find that, you know, you’re with an insurer and you get absolutely hammered on renewal for a claim, or you might get penalised for a claim where they incurred costs, and they treat it more as a money in, money out situation.

So all those things, I think, really just illustrate how hard it is to really predict. And I think when we get into some of the mark market cycle information shortly, that, that is also a big factor.

So I wanna move on to part two, which is with how your business impacts, you know, hidden costs and the like. So the title of this next one is the cost of doing business.

So some of the things that we’re gonna talk about are high limits of cover requested by your clients, and then part two of that is maintaining the cover after the engagement is completed. So I’m sure a lot of people have been offered contracts or works, whether it be mining or government work where they’ve got fairly high insurance requirements.

Where you have to meet those requirements, it’s a direct cost on the premium, but also somewhat of an unknown cost if you’re required to maintain that level of cover for a period afterwards, say, seven years. And when we once again talk about the market cycle now, later on, it’s not just as easy as saying, well, it’s gonna cost me an extra thousand dollars in 2026. I’m gonna budget that for seven years, so that’s $7, because you can’t predict what is going to happen in the industry.

Another thing that costs business where you’re accepting uninsured risk or what we like to refer to as contractual liability in a lot of situations, and there are situations where you agree to provide indemnity or make good on something via your contract, and usually this liability would not apply in a common law situation.

So the common law says, you know, negligence, you make this mistake. You need to compensate and make good on it. Whereas if you’re signing contracts that say, well, even if you’re not at fault or maybe you’re gonna be responsible for someone else, you’re gonna make good.

So there are things to really be mindful of because in the event of a a claim or an issue, that’s where you can have a lot of, a lot of negative outcomes because, you know, the insurance policy will say, well, hang on a sec. We’re only covering you for what the policy says, which is usually a common law position. If you’ve made all these promises, that’s on you, which is really important to to review contracts.

Another thing would be unreasonable caps on liability or or contracts without caps, meaning that your liability could be infinite, theoretically.

We always encourage people to try and cap their liability in their contracts if possible.

Yen, could you just like, because I know there’s there’s probably some thoughts around caps on liability and contracts and whether they actually carry any weight at all. What’s your experience with them?

Look. Contracts are very difficult, particularly where you may wanna contract with a very big entity. They often require you to agree to indemnify them for their own liability. So if they’ve done something wrong and you’ve agreed to do some works with them, whether or not you’ve done anything wrong, you then end up having to wear their claim as well as long as you are somewhat involved.

So that’s that’s very difficult because your policy may not assist you in those circumstances. So the caps that you wanna look for in the contracts that you might enter into, and this is the most common one, is to ensure that liabilities between yourself and the parties that you’re entering the contract into with or reflect the common law position. So effectively, you’re responsible for your own liability. They’re responsible for their own liability.

Wonderful. And we’ve got the last two things there, waiving proportionate liability protections and assuming liability for others, which kind of, you know, talk to each other a little bit. But, you know, every state and for those that joined our webinar, maybe a couple years ago, and I’m sure we’ve got it recorded somewhere about proportionate liability and how every state attacks proportionate liability a little bit differently. So you really need to be across, whatever state you’re operating or contractually obligated within, you’re aware of what the proportionate liability protections are.

Because in situations where you’re agreeing to waive proportionate liability where it would exist normally, that can also get you into trouble from an insurance point of view because that prevents the insurer from bringing other parties in that should be contributing to the loss. It would mean that you’re basically the buck stops with you, and then it’s on you or your insurer to seek recoveries from the responsible parties, which you’re essentially multiplying your cost by two, three, four, depending on the number of other parties.

So that’s something to really be mindful of. If you’ve got those provisions in contracts, have a chat to us because the insurers can agree to special clauses. They will usually charge you a little bit extra because there’s more risk, and we would usually recommend that you try and negotiate out of those where possible.

Same thing where you’re being asked to assume liability for others, whether that be contractors or, as Yen mentioned before, principles.

The theory is and I’ll bang my head against the wall until this becomes common sense, which is never so common. Be responsible for your own panic. Don’t try and accept liability for others. And if you know what? If everybody took that same approach, and I know they don’t because I know dealing with big, ugly corporations, they wanna try and screw you as much as possible.

But if everybody took that same approach, the world would just work beautifully.

Yeah. It’s where, you know, the little people or other parties are just being squeezed and all these unreasonable, it creates uninsured risk. It creates issues where your insurer says, well, why the hell would we wanna be covering the principal’s liability or insuring your subcontractor? They’ve got their own insurance. They should be liable.

So, yeah, that’s just something to be mindful of. We’ve talked ad nauseam about contractual liability over the years, and we’ve got plenty of good content in our in our library. So please please circle back to those topics.

We talked before about uninsured risk.

And, Yen and or Raoul, I might just throw this over to you guys briefly. But when we talk about uninsured risk in contracts, these are some of the ways that they present themselves. Could you could you briefly just talk about some of these?

Go first.

You wanna go first?

Briefly, Raoul, because everybody wants to see the whole presentation.

I I love you. It really comes back to what you’re responsible for and what you’re not responsible for.

And one of the things you really need to make sure is that you’re not taking responsibility for things that you do not have control over, especially in relation to say fitness for purpose, especially in relation to to good provision of goods or services.

Will something do what it is supposed to do in your designs? So you gotta be careful with some of those things. You might recommend a product, but a certain brand will do it, certain brand won’t. You kinda really gotta be careful with these kind of things.

It ties back to warranties or guarantees of particular results. Will something provide this much output depending on the design you’ve got? Is that the right product? Is it not the right product?

Things like consequential or indirect loss. If you’re doing work for a utility company, power utility for a company, for example, and then what you undertake cover for consequential or indirect loss. What does that mean? If the the power grid goes down and the the Tomahawk stakes and everyone’s fridges go freezers go off because there’s no power, are you gonna be sued for replacing those Tomahawk stakes?

Yeah. This is what a consequential or indirect loss is. It’s a it’s a loss that arises from something tangential to what you’ve actually done, and a lot of people don’t consider what that could actually look like. Daniel’s also mentioned taking responsibility for other parties.

In a perfect world, each party takes responsibility for their own actions. It’s it really is the way that it should be. Sometimes it’s not. You’ve gotta look at the provisions of the in the policy wordings, and that’s why it’s good to have a broker that specialises in things like professional indemnity.

They can look at these contracts and go, you might have a problem here. I’ll check with the insurer. You might have a problem there. So the other thing is obligations that can’t be insured.

You know, you’re providing a service or you’re providing a design.

Is there anything in that contract you look at to go, you know, it’s actually not practical for you to ask me to undertake this responsibility because there’s no way that that kind of thing can be insured for.

Yeah. And I I think just to piggyback off that, this is not a list of things that aren’t insured, by the way, because there there are elements to it.

It’s much deeper. So we’re not categorically saying that all these things listed here are are uninsured.

Some of them can be looked at.

Exactly. And I would say, you know, liability for consequential or indirect losses, most policies cover that.

Some will sub limit it depending on what industry you’re in.

Fitness for purpose is a good one. You might think, well, hang on a sec. Like, my job is to make sure my design is fit for purpose. And if I don’t achieve that, am I not insured for that?

And the answer is, yeah. Probably. Because if you’ve breached professional duty, which means that the, you know, the outcome is not fit for the purpose it was designed for, then absolutely that sort of thing would trigger a PI issue. Correct.

But there are more layers to it that you can get caught out from. So we’re not saying that these things are uninsured. We’re saying just keep an eye out for these and making sure that you’re, you know, approaching them with with with due diligence. Yen, did you have anything to add?

No. Certainly, Raoul’s covered all of it. I will just say no. No. No. Definitely, perfect.

But think like, you know, responsibility for other parties. As Daniel mentioned earlier, the contractual liabilities issue comes up quite a bit. But keep in mind, responsibility for other parties may mean you cause an injury to someone by whatever service you’ve provided. You may still be responsible for that person, and your policy may respond depending on what is contained in the policy and depending on how the circumstances.

So Daniel’s absolutely correct to say that that list is also it’s not exhaustive, but it also doesn’t mean that those things match.

Yep. Wonderful.

Runoff cover is another thing that you know, just piggybacking off of one of the other points there about maintaining coverage after the fact.

Professional indemnity is is offered on a claims made basis, which means that it responds to claims basically when they’re notified. So it doesn’t really matter when you provided the service.

It doesn’t really matter when the loss occurred. What matters is when you become aware of the loss or when you reasonably become aware of the loss, and that’s the period in which or the time in which you’re required to notify. Now importantly, this can take days, months, years, in situations, to to mature. So you might have provided a service ten years ago.

If you designed a house or provided engineering, the house might be built two years after that. The house could be fully functioning for a number of years. It goes through five storm seasons, and it and it turns out that there’s an issue with the design of the stormwater runoff. They’re getting water ingress over time.

They’ve got mould.

They then contact you. You might say, well, hang on a sec. I designed that ten years ago. Are we not outside the statute of limitations?

And, yeah, and I’m sure you have a wonderfully succinct response to that when we do get that from time to time. Like, how how how does a statute of limitations usually operate? Like, what is what is the trigger? When does the timer start?

To be really, really quick for you, it’s when the loss occurs.

Right.

So you might have done the design 10 ago, but until the actual leak or the whatever damage has occurred, that’s when the limitation starts. So, usually, in the case of, say, property damage or contractual issues, negligence issues, it’s six years.

And and you might be sitting here thinking, crap. That means that my exposure and requirement for runoff could almost be infinite because at any stage, something could fail. And I think that’s a little bit of the scary point. I mean, you at some point, you will make a commercial decision with the amount of time you take your runoff for, once you satisfied your contractual obligations to say, you know, I promised that I’d have, you know, x y z client. I’d have my insurance for at least five years after I finished the job.
When you get time to retire, you’ll make an educated decision about what that period is. You might consult with your lawyer about the way that your business has been structured, whether it’s through a company, a trust, or as a sole trader, because each of those structures can mean something different from a risk perspective because the legal entity is is what’s going to be, quote, unquote, sued, and the existence of that legal entity will be will be really important. So, yeah, runoff cover is is a tricky one. We’ve got some good content on our information about how long you might consider for, how much it costs, and we’ll probably link to that when we send the send the thank you email post post completion.

Now we’re getting into the juicy stuff, and I know this is where, Raoul will be absolutely chomping at a bit to talk to us about market conditions.

And I think it’s really important, and this is one of the key things I wanted to kinda take people behind the curtain.

Because if you’ve been in business for a while and if you’ve talked to people that specialise brokers or other insurers that that specialise in professional indemnity, you’ll you’ll hear so many off the cuff comments about, oh, yeah. That’s the market or this market’s hard. This market’s soft. And you might be thinking, well, what the hell does that mean?

You know? I why why is the market hard? Why is the market soft? And so I want to just show a diagram of what a what a market cycle looks like.

A hard market where premiums are high, cover is less available, and a soft market where it’s cheap.

And Raoul, when we were putting together this presentation, Raoul was very, very eloquent in his, in his description of what impact cycles and, why insurers do. Raoul, would you would you care to touch on that at all?

I’m not sure where I saved the email.

That’s a good idea. So what drives what drives the cycle?

Raoul, aside from and and because Raoul Raoul’s probably a bit too political to to answer this, and he’s got too much skin in the game. But, the upshot of it is is insurance companies don’t learn. They go through hard soft market cycles due to outside factors.

They like

to True.

Write business, sometimes bad business in a soft market. In fact, quite a lot of bad business for too cheap, and they’re hoping that they get out of it before all the claims start coming in. Because the actuarial data says if you write x y z occupation for this price in the long term, you will lose money.

So, Raoul, just talk to us about what actually drives the cycle and then perhaps where we currently sit, I suppose.

So the reality is the market cycles are driven by corporate grade. It’s as simple as that.

What happens is and it it is a cycle.

And the our analogy goes, it depends who’s running the company. If the company is being run by the salespeople, no offence to any salespeople out there, if they can’t if the insurance company is being run by the salespeople, you gotta get market share. The best way to get market share, drop your prices.

Everything lower the price, the more chances are people are gonna come and chill with you. They’re not gonna care what’s in the insurance contracts. They’re gonna care what they’re coming for. I just want the cheapest price.

If you have got the company being run by the underwriters, it’s about what’s the bottom line, running good, strong, profitable business.

Why? Because bottom line results, that’s longevity and should be consistency of pricing of the product.

It’s being run top line, where it’s all about market share, as Daniel said, you’d get up a you get a whole lot of business. But you pick up a lot of bad business with good business. And what happens in the end is that you get the dollars in, but eventually the claims, and it takes about three three to five years for a claim to go from notification to write through litigation in the courts, what happens is the tail catches the dog, which basically means all the claims eventually catch up. So your claims are your expenses, catches up with your premium, which is your income, and it exceeds it. And when companies start losing money, that’s when they start what they’re referred to as cleaning the book, which basically means they start cleaning up all their prior bad behaviour. Now if you’re going through the traffic lights that Daniel’s got on his cycle, this is exactly right.

The hard market, it’s really expensive. It could be harder to get covered. Why? Because it’s being run from a very conservative perspective.

The the soft market, it means it’s very, very cheap. People are covering everything, and eventually, what’s gonna happen? It’ll blow up, and then suddenly, all the people doing all the sales, they disappear. The underwriters take back control of the company and start trying to clean it up and make it profitable again.

So that really, where should the market sit? The reality is right across the centre, like a horizontal line across that circle. There shouldn’t be a hard market. There shouldn’t be a soft market.

There should be a good, healthy, sustainable market.

That’s where it should sit. But as we know, again, corporate grade, you don’t just see it in insurance. You see it in virtually every industry life, unfortunately, and that’s what keeps the world turning around, where it should actually just sit at a nice level playing field.

And I think, you know, what’s what’s really important is it it’s it feels from a consumer perspective that there are hundreds and hundreds and hundreds of different brokers and insurance companies and all these different options, like how if my insurer just increases the price, can I just go to a different insurer? And hang on a second. If they’re all working together, isn’t that collusion, and wouldn’t the a triple c have an issue with that?

The reality of it is, though, whilst there is a broad frontage from a branding or consumer point of view, in the back end, that funnel gets a lot smaller and a lot tighter. Absolutely. Because when we talk about reinsurance, for example so reinsurance is insurance that insurance companies buy. So they will go buy insurance to make sure that hang on a sec. We might have taken a little bit too much risk. We’re gonna insure that ourselves. So where you could go on, mister consumer can go buy, you know, your professional indemnity from a 100 different insurers locally.

The insurance company going to buy reinsurance, there are only a very small number of places that will do that and will do that competitively.

So what that means is when the funnel squeezes, the reinsurers have a lot more control over what the insurers at the front end do. So if they wanna increase their rates for reinsurance or limit what they cover in there, then the insurers at the front end need to follow suit. So you end up getting a situation where everybody’s squeezing into the same thing, and then because of the actions of the reinsurers and the people that are providing investments and capitals, when they make the decision, it flows back out to the market through all the different tentacles of of ways that you can buy your insurance.

And importantly, it it’s it’s why when you know, if if you’re having a conversation about your car insurance and you’re in Victoria and somebody tells you that your car insurance premium’s going up because there’s floods in North Queensland, you think, well, how is that possible? And it’s because the insurers, from an investment point of view and from a cash flow and capital, they hit more broadly. So they increase rates across everything. Good business, bad business, bad business, more so than good business, but it really demonstrates as to how everything is interconnected and not just here locally. This is this is a global a global proposition.

It is correct.

So, you know, wildfires in California, earthquakes in, you know, in Nepal, all these sorts of things can impact.

Absolutely.

So, Raoul, when we talk about underwriting in a hard market, what are some of the things that you will usually do or or be limited with what you can do?

Okay. So we can talk to two schools here. That’s what what I can do as an underwriter for Moderna, and then what happens generally in the insurance market.

And they are very closely aligned, but they don’t sort of all run-in parallel.

So what you’ve got with a hard market, you’ve got the the policy what the policy will cover is a lot narrower. People will go suddenly go, well, insurance will go, oh, well, actually, I don’t wanna cover this anymore. I don’t wanna cover that anymore. I don’t wanna cover that anymore. And if you don’t like it, go and insure somewhere else, which is very, very different to, oh, come to us. We’ll insure everything, which is what you get in a soft market. So hard markets are generally not good for the consumer.

So that’s sub limits. So for example, you might have a policy that will cover you for x amount in a soft market and a hard market. They go, well, we’ll still provide that cover, but we’re not gonna provide you with as much cover. So we’re gonna pull that down.

Restrictions and endorsements comes back to exclusions. We’re gonna go, we were covering this before, but you know what? Now we’re not going to. And that could come from a couple of different reasons.

It could be remember I mentioned the towel catching the dog? Suddenly, are sitting there going, oh, we didn’t know that could that could cause a claim, and we didn’t know that could cause a claim so bad because remember, the claims are hitting now. So the insurers, the insurance market is suddenly going, oh, we were giving this much cover because we thought it was

safe, but now we know it’s not safe as in for the insurer, so we’re restricting that much cover we’re gonna provide. You start seeing your deductibles, for example, starting to go from cost exclusive to cost inclusive.

Why? Because you want the you want your insured, not yourselves, to start paying a bit more to offset the claims costs. So when you underwrite in a hard market, you don’t care as much about the competition. Because a lot of time, there’s not as much competition.

A lot of the competition has gone, we’re not making any money, so we’ll leave.

And so suddenly, the number of insurers that your broker’s got to deal with, that contracts. And so, basically, a lot of the the soft market conditions, they’re gone. It’s a harder market. The choice of insurer that the broker has, that number reduces, the width of the cover is narrowing, the premium is probably going up, the deductibles are going up, and here’s part of the problem with the hard and soft markets.

It’s not good for the underwriters, but you know what? It’s actually worse for the consumers because there’s no consistency, and you might go, oh, two years ago, I had a 100% increase my premium. Well, now I’ve got a 50% reduction in the premium, but what’s different? I’m not doing anything different.

And I’ve been a broker previously, and it is very difficult to have these conversations. It could be just as difficult to have the conversation as to why everything’s reducing and getting broader. I mean, they’re a lot easier to have, but when you’re having the conversation about why things are tightening and explaining market forces, a lot of the time, you’re there and you go, you know, if I did that in my business, I’m an engineer, for example, and if I did that with my pricing, I’d be out of business. Yeah.

You probably would. Yeah. Yeah. That’s one of the only annoying differences with the insurance market.

That cycle just keeps going.

So but in an under underwriting in the hard market, it’s sort important to have a good broker. A broker that understands what they’re doing and has a good relationship with the underwriter because the broker is there to really go to bat on your behalf.

And I think this is where the rubber really hits the road from a from a cost perspective, and I sort of alluded before. Like, if you’ve got a if you’ve got a contract that says we need you to have 5,000,000 PI or 10,000,000 PI and you usually carry 2,000,000, yeah, that increase from 2 to 5 might cost you a thousand dollars today. But if you have to hold that for seven years, the market is very soft to hard, and that thousand dollars a year turns into 5,000 a year multiplied by seven years.

Do the maths. That’s a that’s a very unpleasant cost that you’ve agreed to contractually, but you haven’t factored into your into your pricing. So I think it’s always good to understand where you sit in a in a market cycle. And I would say, you know, the way that we operate, we like to try and keep things as as even keel as much as possible.

We don’t like to

keep it consistent.

Yeah. Chase the bottom, ride the highs and the lows, and and like Ralph said, it’s about partnering with the with the right insurers.

Yeah. It’s incredibly hard to budget for as well. Yeah. You know, from your own perspectives, you know, you got your cash flows to balance.

It can be really, really difficult when you sit there and you go, these monkeys in the insurance industry don’t seem to know what they’re doing. It’s very hard to budget when if you don’t have a handle on that market.

And this is this is how it impacts you. Because if you if you have issues where you can’t afford it or don’t wanna afford it and you may be in breach of contract, Just remember that, you know, continuity of cover, maintaining retroactive date are two of the most critical things that you can do. And particularly in a hard market, if you let your cover lapse and you’re in one of the quote, unquote riskier professions, you’re gonna find it really, really hard to get an insurer to agree to give you backdated retractive cover versus in a soft market, they’ll generally give that out ***** nilly.

So it’s really important to Yeah, maintain your coverage, keep your retroactive day, and and really pay close attention to it.

And and the other thing that we mentioned, the the prior known circumstances. Like, insurers crack down a lot more in a harder market because they are already losing money.

Yeah. And I would I wouldn’t say that you will ever, you know, openly probably admit to this. But in a in a hard market, in your experience, would you say the insurers keep a much closer eye on their costs?

Potentially. To be perfectly honest, though, with respect to claims and things like that, personal experiences insurers will always keep an eye on costs. And especially when it comes to things like prior known circumstances, I mean, this is us just harping on again.

Notify everything even if it’s not a claim yet because that will protect you as the insured. If you have notified something that may well turn into a claim down the track, you will be protected for it because you have let us know the policy at the time of the notification will be the one that applies. Yep.

Speaker 3
Yep.

Mindful of time. We’ve got a few minutes left that I wanna throw open for questions, but I wanted to leave everyone with some practical tips.

If you take away anything from from this session, this is it. So check that your policy limit matches your exposure.

You know, don’t be agreeing to higher limits, bigger liability caps, all those sorts of things unless it’s appropriate.

And ensure your business can fund your excess at short notice. If you’ve got an inclusive excess, like Raoul mentioned before, it might be 1,000, 5,000.

You know? Sometimes it’s 20,000, 30,000, 50,000, 100,000. Make sure that you’ve got liquidity to be able to to fund that at short notice.

Check your contracts for the ongoing periods that they require cover for.

Are there any exclusions or sublimits in your coverage that expose your business abnormally? And I say abnormally because, you know, across the market, PI policies are somewhat uniform. There will be little idiosyncrasies, but for the most part, check if you’ve got anything that’s unusual. You might wanna get that looked at.

And just to hop on again, I know Yen’s been hot on this, but please, please, please notify claims and circumstances as soon as they arise, as soon as you become aware. Don’t try and fix it. I guarantee you will probably stuff it up.

Even if you don’t stuff it up, it may look like you stuffed it up, and you’ll give the insurance company a reason to say that you prejudiced their position. So please just be very conservative with that. If you call me or someone from the Weber team, our default position is not gonna be, hey. We need to notify the insurer. We’re gonna triage it. We might speak to someone like Yen or speak to an insurer to make sure that we’re doing the right things, and we will give you the appropriate advice on the best course of action.

And finally, we’ve talked a lot about it, but contractual obligations, renew that, making sure you’re not review that, making sure you’re not taking on uninsured risk, and ideally do that with a lawyer.

So, yeah, I want to, just throw over for questions if we’ve if we’ve got any before we wrap up. I’m mindful we’ve done pretty good for time. There’s no questions in the q and a box, at this stage, but I’ll just wait a minute or two while we do that. And and while we wait, I would like to thank everybody for for joining us on this presentation, especially Raoul and Yen for kindly giving us, their time today. Like I said, they’re both very busy and important people. So, we’re very grateful that they’ve that they’ve taken time out today to, to speak to you all.

So I’m just waiting. There’s no no further questions coming through. So if you if you think of anything post completion, send us an email. We’ve got all of our contact details on there. We’re gonna send out, a thank you email with copy of the recording. We might link to some of the other information that we’ve that we’ve talked to about here today.

But, yeah, just Raoul, thank you. Yen, thank you.

It’s, it’s been You’re

welcome.

Wonderful. Thank you for having us.

Yeah. Thanks for the opportunity, mate. Always appreciate it. Thank you.

Wonderful. Thank you, everybody. Appreciate your time as always.