Professional Indemnity insurance plays an important role in risk management for businesses that provide advice or professional services. It protects against claims that arise when a client alleges financial loss due to professional work. Professional Indemnity insurance is a core risk management tool for many professionals
Professional Indemnity Insurance explained
What is a professional?
A professional is defined by the nature of their work. Professionals apply specialised knowledge, qualifications, or expertise to provide advice, specifications, or services that clients rely on to make decisions with financial, legal, operational, or compliance consequences.
Around 3.02 million out of Australia’s total workforce of 15.5 million, are classified as professionals. This includes occupations such as accountants, architects, engineers, IT professionals, consultants, designers, and advisers.
If your work involves professional judgement and client reliance, you are typically considered a professional for insurance purposes.
What is Professional Indemnity insurance?
Professional Indemnity insurance is designed to cover claims alleging that professional services or advice caused a client financial loss. This includes claims relating to negligence, errors, omissions, misleading statements, or failure to meet professional standards.
A Professional Indemnity policy generally covers legal defence costs and compensation payable to a third party, subject to policy terms, limits, and exclusions.
“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.
Who needs Professional Indemnity insurance?
Sole traders, contractors, and small firms can face the same types of claims as larger organisations.
If you provide advice, professional services or consulting, you may consider this type of insurance. This may include architects, engineers, consultants, lawyers, accountants, and healthcare providers.
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 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. As your business grows, we’ll help you cover indemnity risks with industry-specific protection.
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. Professional Indemnity insurance usually 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
What are Professional Indemnity exclusions
Professional Indemnity exclusions usually depend on the policy type and provider. Common exclusions might 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.
Always review policy wordings to understand specific exclusions and limitations.
Professional Indemnity claim scenarios
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.
The appropriate level of cover depends on factors such as the services you provide, contractual requirements, and potential financial impact of a claim.
BizCover offers Professional Indemnity insurance limits ranging from $250,000 to $10 million to suit your business size and needs.
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.
Professional Indemnity insurance is not universally 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 claims can arise years after services are provided. Most policies are claims-made basis, meaning the policy must be active when the claim is made.
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:
Small businesses pay an average of $97 per month for their Professional Indemnity insurance with BizCover.
