Key takeaways:
- Professional Indemnity insurance helps protect businesses that provide professional advice or services if a client claims their work caused financial loss, injury, or damage.
- Cover can include legal defence costs, compensation payments, professional negligence claims, errors and omissions, loss of documents, and allegations of misleading advice.
- Important policy features to understand include retroactive cover, run-off cover, reinstatement of policy limits, civil liability cover, and whether legal costs are included within or outside the policy limit.
- The amount of cover needed depends on factors such as profession, contractual requirements, business size, and the potential financial impact of a claim.
- Some industries and professional bodies mandate minimum levels of Professional Indemnity cover.
Professional Indemnity insurance plays an important role in risk management for businesses that provide advice or professional services.
Professional Indemnity Insurance explained
What is a professional?
In simple terms, a professional is someone who uses their skills, training, or expertise to provide advice or services that help others make important decisions.
In Australia, around 3.02 million people out of a workforce of 15.5 million are classified as professionals. This includes roles like accountants, architects, engineers, IT specialists, consultants, designers, and advisers.
If your clients rely on your expertise to guide their decisions or outcomes, you are typically considered a professional when it comes to business insurance.
What is Professional Indemnity insurance?
Professional Indemnity insurance protects you against losses claimed by a third party due to alleged or actual negligence in your professional services or advice. Subject to applicable limits, a Professional Indemnity policy covers compensation payable to a third party together with your defence costs (which can include legal costs, investigator costs, and expert fees).
“PI insurance is a core component of risk mitigation.” Says Dan Quinn, Head of Customer Acquisition and Product at BizCover, “This isn’t just about ticking a compliance box. It’s about protecting your business’s future, profitability, and reputation, as well as your clients.”
If a client claims your work contained an error, omission, or miscommunication that led to their loss, this insurance can help cover your legal costs and compensation payments.
What does Professional Indemnity insurance cover?
Professional indemnity insurance covers a wide range of scenarios such as professional negligence, data loss and claims that your specialist service caused a client loss.
For allied health professionals, Professional Indemnity can cover claims of bodily injury or illness arising from the services you provide. Professional Indemnity insurance typically covers:
- Allegations of negligence in professional services
- Professional duty breaches
- Accusations of defamation, libel or slander
- Loss of client documents
- Errors or omissions in work delivered
- Misleading or inaccurate advice
- Intellectual property rights violations
- Claim investigation costs
- Legal defence costs associated with a claim
- Compensation or settlements, up to the policy limit
As your business grows, BizCover can help you cover indemnity risks with industry-specific protection.
Who needs Professional Indemnity insurance?
Sole traders, contractors, and small firms can face the same types of claims as larger organisations.
Businesses providing professional advice or services should consider getting Professional Indemnity insurance. It may not be a legal requirement in every state, but many professional associations and licensing bodies require it before granting membership or accreditation.
- Professional services, for example accountants, bookkeepers, financial advisors, management consultants, graphic designers and advertising agencies
- Design and building, for example, architects, engineers, interior designers, surveyors, and draftsmen
- IT and technology services, for example IT professionals, software developers, system integrators, cybersecurity specialists, and managed service providers
- Health, wellbeing, and specialist advisers, for example allied health professionals, workplace health and safety consultants, and other specialist advisers.
What doesn’t Professional Indemnity cover?
Like most types of insurance, Professional Indemnity cover comes with exclusions. It generally does not cover deliberate acts, wrongdoing, or criminal behaviour. Common exclusions include:
- Bodily injury or property damage, which is usually covered by Public Liability insurance.
- Fraud, dishonesty, or intentional wrongdoing.
- Known claims or circumstances prior to policy inception.
- Certain contractual liabilities beyond professional duties.
- Fines, penalties, or punitive damages.
- Allegations of negligence made by employees against you
Always review policy wordings to understand specific exclusions and limitations.
Examples of Professional Indemnity claims
Professional negligence and lack of due care
A bookkeeper installed new accounting software for which the bookkeeper had no experience using. This resulted in a number of errors and omissions which had a financial impact on one of the bookkeeper’s customers. They claimed $25,950 in damages and the claim was paid in full by the insurer.
Administrative error resulting in client loss
A migration agent mistakenly lodged an incorrect visa application on behalf of a client. In order for the client to remain in Australia, they had to submit a different visa and the client had to leave the country briefly to activate this new visa. The claim of nearly $10,000 was paid to cover the cost of the new visa and flights for the client, less the retainer fee.
Negligent misinterpretation of project specifications
A quantity surveyor attended an onsite meeting and misunderstood the verbal description and specifications of the building project. When looking at the drawings, he had a preconceived notion of what was to be plastered and what was not. When the time came to pay, the estimate was out by thousands of dollars. The project manager demanded that the surveyor pay for the variation in cost, an the surveyor’s insurer recognised his liability and made a quick settlement offer.
What to look for in your Professional Indemnity cover
Here are a few simple things to look out for when reviewing your Professional Indemnity cover:
Who is covered
Make sure the policy correctly lists the people and entities it needs to cover. This could include you, your business, employees, contractors, or partners. If someone is not listed, they may not be covered.
Your business activities
Your policy should clearly reflect what your business actually does. If your services are described too narrowly, or do not match your current work, it could affect your cover if a claim arises.
Policy exclusions
Every policy has exclusions, so it is important to know what is not covered. Understanding these gaps helps you avoid surprises later and gives you a clearer picture of your overall risk.
Additional policy benefits
Some policies include extra features or extensions, such as cover for defamation, loss of documents, or investigation costs. It is worth checking what is included so you can make the most of your cover.
Contract wording
If you sign contracts with clients, check whether they include specific insurance requirements or liability clauses. Some contracts may increase your exposure beyond what your policy covers.
Key Professional Indemnity features
When selecting a policy, there are a few factors to ensure you have the right cover:
1. Retroactive cover and retroactive date: Protects you for claims arising from work done before the policy started, as long as the work was carried out after the retroactive date shown in the policy.
2. Run-off cover: Protects you after you stop trading, retire, or sell the business, for claims made later about past work.
3. Reinstatement: Can help restore your policy limit after a claim, so you are not left with reduced cover for the rest of the policy period.
4. Civil liability: Extends protection beyond strict professional negligence and may respond to certain non-criminal claims connected to your services.
5. Fidelity cover: Helps protect against loss caused by employee dishonesty, theft, or fraudulent acts, depending on the policy.
6. Costs inclusive or costs exclusive: Costs inclusive cover means legal defence costs are included within your policy limit. Costs exclusive cover means defence costs are paid in addition to your limit, which can leave more of your cover available for the claim itself.
The appropriate level of cover depends on factors such as the services you provide, contractual requirements, and potential financial impact of a claim.
Some businesses may need a higher level of cover than others. Sole traders, as well as businesses in allied health or contractor fields, often carry greater exposure because their advice or services can directly affect a client’s wellbeing or outcomes.
Your turnover and the level of risk associated with your work also play a role. Larger businesses or those with higher exposure may choose higher limits, while smaller businesses might opt for more affordable cover.
Some professions may require minimum Professional Indemnity cover by law or through industry bodies. For example, registered migration agents must hold a minimum Professional Indemnity cover of $250,000 to legally operate in Australia.
BizCover offers Professional Indemnity insurance limits ranging from $250,000 to $10 million to suit your business size and needs.
Professional Indemnity insurance is not required by law in Australia. However, some professions are subject to mandatory insurance requirements under legislation or professional body rules, including certain financial services, accounting, engineering, and building-related roles.
Professional Indemnity insurance is a claims-made policy, This means your policy must be active when the claim is made, even if the advice or service was provided in the past.
For example, you might complete a project today, but a client raises a claim two years later, alleging your work caused them a financial loss. If your policy is no longer active at that time, the claim may not be covered.
Small businesses pay an average of $103 per month for their Professional Indemnity insurance with BizCover. The cost of Professional Indemnity insurance depends on several factors, including your profession, the size of your business, the level of risk associated with your services, and the amount of coverage you choose.
In some cases you can, but it depends on your policy.
Professional Indemnity insurance can sometimes extend to work you perform for overseas clients or projects outside Australia. However, this is usually subject to specific terms, conditions, and territorial limits set by the insurer.
The provision of the claims examples are for illustrative purposes only and should not be seen as an indication as to how any potential claim will be assessed or accepted. Coverage for claims on the policy will be determined by the insurer, not BizCover. The testimonials, statements and opinions presented are representative of individual experiences. Results may vary and may not be representative of the experience of others. We are not responsible for any of the opinions or comments shared by customers. The testimonials are voluntarily provided and are not paid, nor were they provided with free products, services or any benefits in exchange for the testimonials.
