As a service-based business operator, you typically enjoy lower running costs than those selling products. Instead, you offer intangibles, such as skills, expertise and time.
However, you’ll still need to manage your risk profile. Here’s how professional indemnity cover helps shield your business from potential risks and exposures.
Service-Based Businesses’ Risks and Exposures
Consider how you’d protect your service-based business against these risks and exposures:
- A client misinterprets your advice
- You err in your service or advice (misjudgement or malpractice, for example) or your client thinks you have
- You neglect to offer full and proper advice or service, thus making an omission, or your client alleges this
- A client takes your advice which leads to them suffering a financial loss
- They make a claim in the courts, so you need to fund defence costs and, if unsuccessful, court orders
- Your business reputation suffers whether your client’s allegation is upheld or not.
Such claims may be unexpected.
Understanding Professional Indemnity Insurance
Professional indemnity insurance is one of the more complex coverages you’ll need as a business. It generally covers damage or loss to your clients or others as a result of an actual or alleged negligent act, error or omission whilst providing your professional service or advice.
When a client claims against you, this policy will help fund your legal defence. If you’re unsuccessful in court, your insurance should cover costs for your client’s losses, damages, and legal fees. Your policy will usually pay for claim investigation and disciplinary proceeding costs, too.
Often government agencies and large corporations require contractors, such as your business, have professional indemnity insurance. They may stipulate a minimum level of cover and run-off cover for after you stop working with them.
Typical exclusions in professional indemnity cover include:
- Claims and circumstances that predate the start of the policy
- Disputes about your professional fees
- Contractual disputes
- Possibly cybersecurity issues
- Property damage or personal injury that a breach of your professional duty did not cause
- Fraud, dishonesty and intentional damage.
Industries and Professions Benefitting from PI Insurance
Here’s a comprehensive, but not exhaustive, list of business types that benefit from professional indemnity insurance:
- Professional services: lawyer, architect, IT specialist, marketer, real estate agent, accountant, financial advisor, tutor, psychologist, insurance broker
- Personal care: massage therapist, hair stylist, beautician, tattooist
- Home repair: electrician, plumber, carpenter, roofer
- Creative services: writer, graphic designer, podcaster
- Health care: physical therapist, social worker, doctor, surgeon, fitness trainer
Risks of Not Having PI
If you haven’t invested in professional indemnity insurance, you’ll need a pool of funds just in case a client makes a claim against you. But it’s difficult to estimate how much you’ll need.
Even if you use your retained profits to pay out a claim so your client doesn’t pursue legal or regulatory avenues, others may see it as an admission of guilt.
Do you have extra funds to invest in public relations expertise to rebuild trust with your clients and the general community? Typically, their crisis management strategy would involve reshaping your marketing messages, media liaison, and a social media campaign.
Another issue is cancelling your cover, meaning you won’t be covered if past clients take action against you. This can be a problem where you’ve signed a contract agreeing to maintain your professional indemnity insurance policy for seven years after you’ve completed the work.
So, keep in mind, once you cancel your policy, you’re vulnerable to claims for past, present or future services or advice you have offered.
Review Your PI Cover With Us
Each service-based business is unique, so your cover and premium will depend on your revenue, business size, how much cover you need, who it will cover, as well as your claims history. We can guide you on policy options. We’re also here to help review your cover so it suits your current circumstances and budget.
According to a recent survey of Australian businesses, 85% of those who worked through a broker or advisor were satisfied with the claim process and outcome compared to just 46% of those who bought insurance directly.
So, it’s good to know you’ll have our support should you need to claim.