Professional Indemnity Insurance defined
Professional Indemnity insurance helps protect your business in the event a claim of negligence or breach of duty is made against you and your business.
Our Professional Indemnity guide walks you through everything you need to know about Professional Indemnity, including coverage/exclusions and claim scenarios.
Professional Indemnity Insurance explained
Professional Indemnity insurance is designed to protect businesses that provide advice or professional services. 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.
It’s an important part of any business’s risk management plan, especially for professionals who provide advice or technical expertise as part of their job. BizCover offers tailored Professional Indemnity cover for a wide range of professionals, including engineers, accountants, architects, consultants, healthcare specialists, and real estate agents. This helps professionals stay protected while focusing on their clients.
“PI insurance is a core component of risk mitigation.” Says Dan Quinn, Head of Customer Acquisition 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.”
Why do I need Professional Indemnity insurance?
You may need Professional Indemnity cover if you:
- Provide advice, guidance, or consultancy that clients rely on to make decisions
- Handle or store confidential client information that could be exposed or mishandled
- Create reports, plans, or designs that could be challenged or claimed as inaccurate
- Work in a profession where defamation, copyright breaches, or professional misconduct claims are possible
Professional Indemnity insurance helps protect both your finances and your reputation. It’s designed to cover legal expenses and compensation costs, allowing you to focus on doing your job without fear of a single mistake putting your business at risk.
What types of businesses require Professional Indemnity insurance?
Professional Indemnity insurance is designed to protect businesses that provide advice, professional services or consulting. This may include architects, engineers, consultants, lawyers, accountants, and healthcare providers. These professions face unique risks as mistakes, omissions or errors in their advice or service could potentially lead to significant financial loss for their clients.
If you’re a business owner or sole trader offering professional services, Professional Indemnity insurance can be an important investment in your career and long-term financial stability. It may not be a legal requirement in every state, but many professional associations and licensing bodies require it before granting membership or accreditation. Having this cover can also enhance your professional credibility, showing clients that you take your responsibilities seriously and are prepared for unforeseen risks.
What does Professional Indemnity insurance cover?
Professional Indemnity insurance can offer protection against certain types of risks, such as:
- Misleading or negligent advice
- Professional duty breaches
- Breaches involving confidential or sensitive information
- Accusations of defamation, libel or slander
- Misplacement or destruction of client documents
- Intellectual property rights violations
- Legal fees awarded against you
- Costs associated with legal defence or claims response
- Expenses related to the investigation of a claim
- Costs associated with disciplinary proceedings
- In some policies, Professional Indemnity coverage may also include public relations expenses to manage your business reputation.
For business owners in the allied health sector, Professional Indemnity may extend to claims of bodily injury or illness that are directly related to the professional services provided.
How much Professional Indemnity cover do you need?
The right level of Professional Indemnity (PI) cover depends on your business size, contract values, risk profile, and regulatory requirements. Choosing too little could leave you exposed to uncovered claims. But choosing too much a limit may cost you more than necessary.
BizCover offers tailored Professional Indemnity policy options. You might opt for $250,000, $1 million right up to $10 million, depending on your industry and client demands.
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.
What should I consider before buying Professional Indemnity insurance?
Before purchasing Professional Indemnity insurance, it’s important to think about the specific risks your business faces and how much protection you’ll realistically need. Start by assessing the nature of your work. Do you give advice, design plans, handle confidential information, or sign client contracts that specify minimum insurance levels? The higher your risk of financial loss to clients, the more comprehensive your policy should be.
Think about the amount of cover that makes sense for your situation. Your policy should be able to handle both legal expenses and compensation payouts if a claim arises. Check whether the limit includes defence costs or if they’re covered separately.
Consider your industry’s regulatory requirements too. Some professional associations or government bodies require a specific minimum level of cover before you can practice or renew your registration.
Lastly, review the fine print before buying. Understand the policy exclusions, excess amounts, and claims process so you know what’s covered and what isn’t. Taking the time to compare policies can help ensure you find the right protection for your business without paying for unnecessary extras.
Examples of Professional Indemnity claims
Here are three examples of some common Professional Indemnity claims you might face if and when an unexpected event happens in your normal course of work:
Not doing it by the book:
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.
Messy migration:
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.
Erroneous advice:
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 many thousands of dollars. The Project Manager looked to the quantity surveyor who had made the error and asked him to pay for the variation of cost. The surveyor’s insurer recognised his liability and made a quick settlement offer.
How much does Professional Indemnity cost?
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. Every business is different and so would the type of cover and policy cost.
According to our analysis, small businesses pay an average of $97 per month for their Professional Indemnity insurance with BizCover.
IT consultants might pay a different fee in premiums compared to medical practitioners due to the unique risks each face in their respective fields. Generally, high-risk professions may face higher premiums due to the potentially large financial damages claims can incur.
