How the cost of Professional Indemnity insurance is calculated
Ever wondered how the cost of a Professional Indemnity (PI) insurance policy is calculated and why one profession can often cost more than another? We look some of the key factors that that impact the cost of Professional Indemnity insurance.
Insurance policy pricing is generally calculated on risk factors and put simply, the higher the level of risks, the higher the premium. Some of these keys factors include, but are not limited to:
- Your profession and the industry you operate in
- The size of your business, by revenue and number of employees
- The level of cover selected
Your Profession / Industry type
Believe it or not, one of the biggest impacting factors when it comes to calculating the cost of your Professional Indemnity policy is the industry you operate within. Industries and services which have a higher risk of a claim occurring are going to attract a higher policy premium.
When applying for a Professional Indemnity policy, the insurer will assess the type of business activities you perform and calculate the likelihood of a claim as well as the potential cost of damages if you were to make a claim.
It is important to keep in mind, that each insurer has their own method and formula for assessing risk factors, meaning one insurer may rate your occupation as a lower risk than another insurer and vice versa.
The size of your business
As your business grows, so can things like your bank account, your work load and the number of people you employ. While growing your business is exciting and a good sign of how well things are tracking, it won’t be the only thing on the up. As a result, you may also notice an increase with your PI policy premium.
This is because it is a strong indicator that your business is generating a lot of work, and the more work you do, the higher the chance of something going wrong and a claim being made against your business.
The same can be said for the number of employees you have. The more staff you have employed, the higher the chance of something going wrong and a claim occurring, meaning, yes you guessed it – higher costing premiums.
The level of cover
Like most things, the more goods or services you purchase, the more you’re likely pay, however, this is where the good news comes in! When there are increases in increments to your level of cover, you will not necessarily see an excessive increase in the premium. For example, looking at the data of almost 5,000 BizCover customers with PI insurance during the 2016/17 financial year, the average monthly cost for a policy with $2 million of cover is $99, however those with $5 million worth of cover are paying slightly more at $127 per month.
Here are some of the factors you may need to consider when calculating which level of cover your business may need:
- Legislative and/or industry association requirements. Minimum amounts are often mandatory for specific occupations.
- Do you take on any work contracts that require you to hold a certain level of cover?
- If a claim was made against you, how much coverage would you need to cover the potential damages and legal expenses?
- How many employees do you have? Bearing in mind that the more employees you have, there is an increased risk of a potential claim occurring
If you want to get an accurate idea of how much a Professional Indemnity Insurance policy might cost you, the best way is to compare free instant quotes today!