Choosing the right level of Professional Indemnity insurance is one of the most important insurance decisions a business can make. Yet many businesses get it wrong – whether by not choosing an adequate level of cover or purchasing insurance that still leaves them exposed to common risks.
This is why it’s important to understand what Professional Indemnity insurance covers, and how to decide on an appropriate level that suits your unique needs.
What is Professional Indemnity insurance?
Professional Indemnity insurance offers protection for businesses that provide specialist services or professional advice. It is designed to respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. PI Insurance will also assist with the legal costs associated with responding to or managing claims which are covered by the policy.
Flexible Professional Indemnity cover options
Professional Indemnity insurance is not one size fits all. Different businesses carry different levels of risk. BizCover offers Professional Indemnity insurance limits from $250,000 up to $10 million. Businesses can choose cover that suits their needs, paying for what they need.
As a general rule of thumb, a $250,000 limit may suit sole traders or small businesses providing low-risk professional services. For example, freelance copywriters, graphic designers working on small projects, bookkeepers or consultants providing non-critical operational support.
A $1 million to $2 million limit is commonly considered by small to medium businesses providing advice or services to other businesses. For example: marketing consultants, IT support providers, management consultants working with SMEs, interior designers, and training providers delivering short courses.
A $5 million limit is often relevant for businesses working with larger organisations, government entities, or under contracts that specify higher insurance requirements.
A $10 million limit may suit businesses working on large or complex projects, or operating in industries where the financial impact of an error could be significant, such as large consulting firms, engineering practices involved in major infrastructure projects and architects working on large commercial developments.
How to calculate how much cover you need
The right level depends on several factors, including:
Risk appetite
The type of services you provide play a major role in deciding your level of risk. Some occupations and industries are considered at higher risk because the advice or services delivered can have significant financial, legal, or operational consequences if something goes wrong.
For example, consultants providing strategic or financial advice, IT professionals responsible for systems or security, engineers and health and safety advisers usually face higher exposure than support-based service providers.
Contractual requirements
Many client contracts specify minimum levels of Professional Indemnity insurance. These requirements often reflect the client’s assessment of risk, not the size of your business. Failing to meet contractual limits can expose you to uninsured liability.
If a claim arises and your cover does not meet the contractually required limit, you may be personally responsible for any shortfall. For example, a contract may require $5 million or $10 million in Professional Indemnity insurance as a condition of engagement, even for a short-term project.
Regulatory and professional obligations
Some professions have minimum insurance requirements set by regulators or professional bodies. These are usually a baseline, not necessarily a recommendation for all situations.
For example, accountants, nurses, architects, and engineers may be required to hold a minimum level of Professional Indemnity cover to maintain registration or membership. While meeting this requirement is essential, businesses often choose higher limits if their services, client base, or project size create greater potential exposure.
Claims history
Some industries experience higher claim frequency or severity than others. Past claims, even minor ones, may also impact how much cover you might need going forward.
Choosing the right limit involves balancing risk exposure, client expectations, and affordability. Reviewing limits regularly helps ensure cover remains aligned as your business grows or takes on new work.
Get the right Professional Indemnity insurance
This step-by-step list may help you choose cover that fits your business needs:
- Know your risks: Be clear about what advice or professional services you provide, and where errors or omissions could cause financial loss.
- Check contractual requirements: Read client contracts carefully for minimum policy limits or insurance conditions you must meet.
- Assess potential claim impact: Think realistically about the financial impact if a client alleged loss due to your work, including legal defence costs.
- Consider your business size and growth: Factor in turnover, staff numbers, project values, and how your business may change over time.
- Account for past work: Remember that claims can arise years after work is completed. Ensure cover reflects your historical exposure.
- Choose an appropriate indemnity limit: Select a limit that balances risk, affordability, and client expectations, not just the lowest price.
- Understand inclusions and exclusions: Read the policy wording, including exclusions, conditions, and sub-limits.
- Review cover regularly: Update your insurance when your services, clients, contracts, or business structure change.
