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Jul 27

Professional Indemnity Insurance – How much do I need?

  • July 27, 2012
  • Chris Webber
  • No Comments
  • Insurance News

A question that is regularly raised by clients is:

How do I decide what on limit of Professional Indemnity cover I need?

This can be a pretty tricky question to answer as there is no real set answer. Every business is different and is governed by different industries, associations and regulations.

Some industries have set limits of minimum cover that is required for membership. This is usually the first port of call.

For an accountant to be a member of the CPA, they are required to take out a minimum of $1,000,000 cover. Similarly for a mortgage broker who is part of the MFAA – they are required to take out a minimum of $2,000,000 cover.

Stipulation in contract

Another guideline to the required amount of cover is via a stipulation in a contract. Most standard contracts for contractors have minimum limits set out that one must comply with to meet the requirements of the contract.

These are usually the simplest guidelines for selecting a level of cover but lead to an expectation that the industry limit will be sufficient. To correctly set a limit of cover for Professional Indemnity one must consider the following:

1. The size of your largest client or contract

Though needs to be taken as to the overall size of the contract being worked on. Although you may only be working on a small part of a project, the exposure should something go wrong could be significantly higher.

2. The number of parties relying on your advice

Whilst advice may only be provided to one party, considerations need to be made into what that advice is going to be used for. A engineer for example may provide a small amount of advice to their client. Their client provides this information to all the other parties involved in the remaining steps of a project. If this advice is incorrect, then a domino effect of affected parties can occur causing significant losses.

3. Remembering to include defence costs

Some policies include defence costs in the sum insured, some policies have it as a separate limit. Consideration needs to be given to what the costs would be involved with defending an action against you. A long court case can incur signification costs that, if not taken into consideration when setting a limit, can be the difference between having enough cover or having to pay some costs yourself.

4. Future proofing your cover

A Professional Indemnity policy is of a ‘Claims Made Basis’ meaning that consideration needs to be given not only to the costs now, but also for your past activities. Inflation and other factors need to be considered, as a financial loss of $250,000 several years ago, is likely to be significantly higher now.

Professional Indemnity insurance is a complicated policy requiring great care in setting a suitable limit of cover. We have had plenty of experience in assisting clients with their Professional Indemnity Insurance requirements so give us a call if you are concerned about your level of cover.

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Chris Webber

About The Author

Chris Webber is the Director of Webber Insurance Services. Chris has been in the insurance industry for almost 15 years and is an SME business insurance specialist. The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed insurance broker in order to assist you.

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Neil Gray
Neil Gray
00:44 01 Dec 17
Top in their game, excellent service and interaction with office, everything is so easy and very price competitive. I can highly recommend Webber Insurance Services. Neil Open2View Real Estate Photography
Paul Parks
Paul Parks
01:11 01 Dec 17
After unsuccessfully searching around for the right insurance for my business i eventually found Webber. They were great to deal with and understood my needs. I have no trouble recommending these guys.
Sharyn Evans
Sharyn Evans
00:14 01 Dec 17
I've always been impressed by the responsiveness of the team at Webbers Insurance. From renewals to claims processing, they make the process easy and show a great deal of patience, particularly with regards to explaining the claims process itself. Would highly recommend them to anyone looking for small business insurance.
Dean Oakley
Dean Oakley
07:33 01 Dec 17
We've been with Webber insurance for 3 years and we have made a couple claims during that time. They have always been easy to deal with and very understanding. I highly recommend them!
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