Professional Indemnity insurance is meant to, as a means to, provide protection for Australian businesses who give advice to clients that may result in financial or other losses to these clients. All specialist advisors such as private bankers, financial planners, engineers, accountants and lawyers are required to carry professional indemnity insurance. However, the news on professional indemnity insurance over the last three months indicate that those carrying this insurance as well as those businesses providing the insurance coverage may need protection from the insurance business itself.
2009 saw an increase in claims against professional insurance companies that indicate an upward trend in those people wanting to recover losses that they believe were a result of those professional businesses with which they did business. More claims means more paper work, more money spent on paying legitimate claims and more money spent on defending companies from bogus claims resulting in higher premiums to the professional companies themselves.
On top of the higher rate of insurance claims, new regulations passed in January 2010 by the Australian Securities and Investment Commission calls for higher standards of professional indemnity insurance this may result in higher premiums for many professional businesses. This rise in professional insurance premiums will be noticed by those insured mainly in March and July when policies are renewed. When your business policy is renewed it will be reviewed to determine if it meets these new higher standards. For those whose policies do not meet the new standards commercial insurance, premium rates could rise by as much as triple from what companies are paying now.
This could be bad news for many companies who have thus far managed to weather the tough economic climate of the last two years.
The bad news doesn’t stop there. A new report issued in March by PriceWaterhouseCoopers (PWC) shows that the companies who underwrite insurance to businesses are being defrauded by their employees to the tune of over 1 million U.S. Dollars giving Australia the dubious distinction of having the highest internal fraud detection anywhere in the world. To complicate matters even more, Australian businesses themselves are uncovering fraud by 40% of their own employees to the tune of millions of dollars.
What this means is that the insurances underwriters themselves are being taken for several millions of dollars both by false claims and by their own employees. This again could eventually be bad news for those carrying professional indemnity insurance as well as all those insured across the board as these losses will more than likely be made up by increasing the premiums of the insured.
For those businesses required to hold professional indemnity insurance to protect them from client claims of loss they are probably wondering who is going to protect them from the insurance companies themselves. However you look at it, the news is not good on the professional indemnity front and those needing and required to hold these insurances policies may soon see their rates skyrocketing.
