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No matter how professional or experienced your business is, there’s always the risk that something can go wrong. You could give the wrong professional advice to a client, which leads them into trouble, or an employee could make a mistake in their service that negatively impacts a customer.

Luckily, professional indemnity insurance* could provide you with financial protection in the case that legal action is taken against you.

Let’s break down how this type of insurance can help to cover you in such unfortunate, but possible, scenarios.

What is professional indemnity insurance?

Professional indemnity insurance protects professionals who provide advice or services to other businesses or individuals. Should you make a mistake in this advice or service, this type of insurance may help cover any defence costs that come from potential damages claims.

Why you should consider professional indemnity insurance

Despite your best intentions, no person – or business – is immune from making mistakes. That’s why many associations require or recommend that professionals are covered with industry-specific professional indemnity insurance.

So, what can go wrong? Some common examples of breaches of duty and professional mistakes can include:

  • A graphic designer creating content similar to a copyrighted design, resulting in legal proceedings.
  • An accountant auditing a client’s account incorrectly, resulting in a penalty and financial loss for the client.
  • An accidental omission in the provision of professional advice resulting in a critical deadline being missed.

What does professional indemnity insurance cover?

Professional indemnity insurance policies cover your business against claims arising from (actual or alleged) negligent acts or omissions you may make in providing professional services and advice. Your cover includes compensation, legal fees and investigation costs.

Typically, professional indemnity insurance can financially cover:*

  • Breaches of duty, including claims from privacy breaches like breaches of confidentiality and fiduciary duty, as well as professional duties that have been overlooked
  • Damages due to the dishonest and negligent actions of employees
  • Breaches of trade practices and fair-trading acts
  • Defamation cases arising out of professional advice or services
  • Public relations expenses to help protect your business’ reputation.

Be sure to check the Product Disclosure Statement (PDS) provided by your professional indemnity insurance broker so you know exactly what you’re covered for. Different insurance products may provide different cover.

Professional indemnity insurance exclusions

All professionals should understand their policy’s exclusions, so they know what they aren’t covered for. Typically, policies will not cover claims arising from:*

  • Illegal acts
  • Punitive and exemplary damages (when a judge has found a professional to be exceedingly negligent)
  • Intentional damage, which generally includes any acts, errors or omissions from the insured professional that intended or could reasonably foresee loss, injury or damage caused to a third party
  • Any claim relating to asbestos
  • Employee injuries sustained while working or carrying out your business’s activities (this would be covered under worker’s compensation insurance)
  • Public liability claims.

taking out professional indemnity insurance

What you’ll need to include in your policy quote

Have the below details handy when completing a quote:

  • Contact details
  • Business details (e.g. the total number of employees)
  • Financial information (e.g. annual revenue)
  • Information about any previous claims.

Your type of business and its services will affect the level of professional indemnity insurance you may need. Therefore, it’s vital to provide all the information you can about your business when completing a quote and obtaining cover.

Additionally, be sure to disclose any past complaints or claims made against you to your potential insurer. Even if you’re doubtful, it’s still best to disclose any information you can, as any omissions of past claims (whether intentional or not) can invalidate or limit your cover.

What other types of business insurance should you consider?

When it comes to running your own business, it’s important to consider all types of insurance, including:

Public liability insurance*

Suppose your business is found liable for the injury, death, loss or property damage to a third party. In that case, this type of insurance covers any legal fees and compensation.

Product liability insurance*

If your business’ products cause harm, loss or damage to your customers, this type of insurance can cover the associated legal fees and compensation awarded.

Frequently asked questions

Who needs professional indemnity insurance?

Professional indemnity insurance is highly advisable for any business that provides advice or services to clients. If you make an error that causes your client damage, injury or loss, you could be held liable, which can cost you a lot of money. Professional indemnity insurance may be mandatory for some professionals in Australia, like engineers and architects.

What happens if I don’t have professional indemnity insurance?

If a client takes legal action against you, you’ll need to fork out the money to cover all legal defence costs from your own pocket, as well as the potential costs of damages awarded to the other party.

What’s the difference between public liability and professional indemnity insurance?

Public liability insurance financially protects businesses against claims made by third parties for damages, loss or injury. For example, this type of cover protects you if a customer slips and injures themselves on your premises. Professional indemnity insurance covers claims made by clients if your professional advice or recommendations cause them damages, loss or injury.

Depending on your business, you might find both cover options essential.

What’s the cost of professional indemnity insurance in Australia?

The cost of this insurance will depend on a range of variables, including your profession, the size of your business and whether you’ve had any previous claims. To find out how much you might need to pay for this type of cover, you can use our free online comparison tool to compare your options.

Adrian Taylor, General Manager

Meet our Business Insurance expert, Adrian Taylor

As our Executive General Manager of General Insurance, Adrian Taylor understands how professional indemnity insurance can protect professionals like doctors and personal trainers who provide advice or services to others. Adrian is dedicated to helping business owners understand this type of insurance so they can protect their services from financial claims.

Adrian has over 13 years’ experience in the financial services industry. He helps review general insurance content on Compare the Market to ensure it accurately breaks down complex insurance topics.

Adrian’s top tips for business professionals

  • Premiums for professional indemnity insurance are calculated on a number of factors, including the size of your business by revenue and staff, the industry you operate in and your level of cover. As your business grows, so too may your premium, so it’s worth comparing your policies at least annually to make sure you’re getting a good deal.
  • Insurers will all have different rating factors; for example, one insurer may rate your industry lower than others, meaning you may likely see a lower premium. By comparing your options with Compare the Market, you can see a range of policies from different insurers to decide which one is right for you.
  • Be open and honest with your insurer when you apply for a policy; don’t try and ‘hide’ things like previous claims, turnover or staff numbers. Should you need to claim, you don’t want any nasty surprises based on incorrect information previously given.
  • There are varying levels of business insurance policies, so no matter what policy you take out, you should always read the PDS to understand what is included.
  • Talk to your insurer about varying your excess. If this option is available to you, you can potentially lower your premiums in exchange for a higher excess (or vice versa).

Ready to safeguard your business?

Whether you’re a freelancer or run a small business, we can help you compare professional indemnity insurance.

Our service makes it quick and easy for you to weigh up policy prices, features and benefits side-by-side so you can find great value. Simple!

*As with any insurance, the cover is subject to the terms, conditions and exclusions contained in your policy document. The information contained on this webpage is general only and should not be relied upon as advice.

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