Professional indemnity insurance: The business protection you shouldn’t overlook – Part 1

07 Oct Professional indemnity insurance: The business protection you shouldn’t overlook – Part 1

When you run a small business, there are plenty of obvious things to protect — your premises, equipment, vehicles, stock and employees. But one of the greatest risks facing many professional and service-based businesses can be much harder to see.

It is the risk attached to the advice, recommendations, designs, services or professional work you provide.

That is where Professional Indemnity Insurance can play an important role.

Professional Indemnity Insurance, commonly known as PI insurance, is designed to help protect businesses and professionals against claims arising from allegations that their professional advice or services caused a client financial loss.

Importantly, you do not necessarily need to have made a major mistake for a claim to arise. A client may simply believe that your advice, service, recommendation or failure to act appropriately contributed to their loss.

Responding to such an allegation can involve legal costs, professional fees, significant amounts of time and potential damage to your business reputation.

For a small business, these costs can be substantial.

Three common triggers for a Professional Indemnity claim

While every business is different, there are several situations that can commonly lead to a potential claim.

An error or mistakeEven experienced professionals can make mistakes.A consultant may provide incorrect information. A designer may make an error in a specification. An accountant may inadvertently overlook something important. A technology provider may implement a solution that fails to perform as expected.

If the client suffers a financial loss and believes your mistake was responsible, they may seek compensation.

Advice that does not produce the expected resultProfessional advice often involves judgement.A client may follow your recommendation and later experience an outcome they did not expect. Even where the advice was provided reasonably and professionally, a dispute may still arise over what was said, what was promised or what the client understood.

Clear records and good communication can help, but sometimes professional disagreements still develop into formal claims.

Failure to act, delay or omissionSometimes the problem is not what a business did — it is what it allegedly failed to do.A missed deadline, an overlooked instruction, failure to provide important information or an administrative omission may result in financial consequences for a client.These situations demonstrate why Professional Indemnity Insurance should not simply be regarded as another business expense. For many professional businesses, it is an important component of broader risk management.

Professional Indemnity is only part of the picture

No single insurance policy protects a business from every possible risk.

Small business owners should also consider whether other forms of insurance are appropriate for their circumstances.

Three important areas to discuss with an insurance professional include:

Public Liability Insurance — which may provide protection where a third party suffers injury or property damage connected with your business activities.

Cyber Insurance — increasingly important for businesses holding customer information, relying on technology or conducting transactions online.

Business Property and Business Interruption Insurance — helping protect physical business assets while also considering the financial consequences if an insured event prevents the business from operating normally.

These covers will form the focus of the next two articles in this small business insurance series.

Advice can make all the difference

Business insurance is rarely a case of simply choosing a policy and forgetting about it.

Every business has different customers, contracts, professional responsibilities, assets and exposures. Those risks can also change as the business grows.

An experienced insurance broker or adviser can help identify where your exposures may exist, explain available insurance options and assist in determining whether your current cover remains appropriate.

They can also play an important role when a claim occurs — helping you understand the process and working with you when you may need support most.

Running a business already involves enough uncertainty.

Understanding the risks, reviewing your insurance regularly and seeking professional advice can help ensure that one overlooked exposure does not undo years of hard work.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)