Professional indemnity insurance – topics to discuss with your broker
Most professionals, be they consultants or small business owners, understand the value of professional indemnity cover to help protect their business and reputation from acts of negligence, errors or omissions, which can pose a real threat to the bottom line of New Zealand businesses.
Even so, the complexities of this insurance can often make it confusing and cumbersome for individuals to work out what level of cover they need.
This is why many businesses choose to outsource the task of securing insurance to an expert broker who not only understands the technicalities of policy wordings, but also the intricacies of your profession, business and industry.
Before deciding on your professional indemnity policy, here are some considerations to explore in your conversations with your insurer or broker.
1. Are your services accurately matched to your policy wording?
A professional services description is an important component of professional indemnity cover.
Before you can be matched with the right policy, you or your broker should confirm that the professional services description in your policy accurately matches the activities you carry out.
For this reason, it’s best to partner with a broker who understands your business, sector, or industry.
2. Does your policy offer additional claims mitigation benefits?
Obviously the key objective of an insurance policy is to have access to financial support in the event of an incident or claim. But not all policies are equal. Some have additional features to support you in mitigating risk incidents, before they blow up.
These can include funds to help cover costs of early intervention and mitigation measures including:
· Legal consultations
· Public relations expenses
· Claims mitigation to help minimise client exposure.
This option isn’t always easy to obtain – but it’s worth talking to your broker about whether it’s available and right for you.
3. Does a ‘costs-in-addition limit’ and a ‘cost-exclusive retention’ apply to your policy?
The maximum amount an insurer will agree to cover you for under a policy (the limit of liability) is determined by many different factors – your occupation, industry, size and type of clientele - just to name a few. But your cover might not provide enough funds to pay for all your defence costs, which can quickly accumulate to hundreds and thousands of dollars.
It’s a good idea to check with your broker whether your professional indemnity policy includes the following features:
· A costs-in-addition limit – this means your defence costs are covered by the insurer in addition to your total insured amount so that payment of defence costs by the insurer does not reduce the amount of your limit of liability available to pay any claim amount.
· Costs-exclusive retention – where a retention applies, your business will be liable to pay all or a portion of claims payment, as well as defence costs, before the insurer will be liable to pay any amount. However with a costs-exclusive retention, your defence costs will be paid by the insurer from the outset meaning that you will only be liable to pay the retention if a claim amount becomes payable.
4. Is your broker able to advise you on an ongoing basis?
From time to time, you may have questions about your business insurance. For example, when providing services to clients, they may require you to sign contracts with them and prove that you have adequate PI insurance. In such cases, before you sign, you should seek advice from a broker who can check the contract against policy wording, and advise whether the cover provided by your professional indemnity policy is sufficient, or whether the contract exposes you to any additional risks.
For this reason, you should consider partnering with a broker who can be available when and as you need them to advise you on your options. It’s also important to remember that an insurance policy is difficult to amend after you have signed a contract with a client.
5. Do you need run-off cover?
Often overlooked and least understood, run-off cover is an essential consideration for anyone who provides advice as part of their service.
Generally speaking, run-off cover is a type of insurance that provides protection for professionals or businesses after they have ceased operations or stopped providing services. It is designed to cover claims that may arise from work that was done before the cessation of operations or the end of a policy period – and can help provide peace of mind that you are covered for work you previously completed.
The terms of run-off cover, including the length of the run-off period and the events that can trigger the cover, can differ significantly from policy to policy so it is very important for you to obtain advice from your broker prior to purchasing it.
6. Do you need to back-date the cover under your policy?
Depending on the nature of the services and advice you provide, you may benefit from setting an ‘unlimited retroactive date’ on your insurance policy.
Not all policies have this feature. It means that you will be covered for claims made and notified during the policy period arising from any errors or omissions you may have made prior to the date of purchasing the cover – regardless of how far back in time you provided the service.
This option isn’t always easy to obtain – especially if you have a poor claims history – but it’s worth talking to your broker about whether it’s available and right for you.
Whether you’re navigating your own business insurance or using a broker, there are a number of complexities and options you need to consider before purchasing your policy, and also after you’ve purchased it. By partnering with a business broker who has expertise in your profession, industry or sector, and who understands your unique risks, you’ll save time and have peace of mind that you’ll find the right cover – at the right price point – to help protect yourself and your livelihood.
This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.
LCPA 23/150
Marsh Ltd (NZBN 9429040918792)(“Marsh”) arranges insurance and is not an insurer. This webpage contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire the product, refer to the specific policy wordings and/or product disclosure statements available from Marsh on request.