Calculation of Professional Indemnity Insurance Cost
Being a professional has its own set of risks. Many professionals or firms provide services, advice and consultations to clients. Irrespective of skills, knowledge, and experience, there is always a possibility that they might make a mistake resulting in losses, financial or otherwise. Insurance is one of the most common risk mitigation tools. Like any other insurance type, covering for risks comes at a cost. In the article below we shall look at the factors that affect professional indemnity insurance costs.Read more
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What is Professional Indemnity Insurance & Its Coverage
Professional indemnity insurance, also called as professional liability insurance provides a shield against financial expenses due to unexpected occurrences professionally. It is not a legal requirement, but having adequate coverage of this insurance is very essential. With this coverage, the professionals are protected from the expenses of fighting legal claims and other financial aspects arising from it.
Some common coverage under this policy includes:
- Professional negligence
- Breach of confidentiality
- Breach of copyright
- Lost or damaged documents
- Lost goods or money
Key Factors that Impact Professional Indemnity Insurance Cost
Professional liability insurance premium amounts vary from insurer to insurer. Each insurer or insurance company takes a view depending on the risks the business is subject to. Accordingly, premium rates are decided.
Profession and Industry Type
One of the biggest factors that affect the professional indemnity insurance cost is the type of business and industry they operate in. At the time of purchase, the insurance company assesses the type of industry and the business activities they perform. Based on the industry standard and the activities undertaken, the likelihood of a claim and the severity of the same is assessed.
Size of the Business
While a growing business is a sign of how well things are flourishing, it may also need more coverage of professional indemnity insurance. A small retail business with a single outlet may have lower risks compared to those with a higher number of outlets. Thus, the premium amount will also increase.
Similar to the above point, the amount of professional fees bears a direct relation to professional indemnity insurance costs. For instance, if the professional charges a higher fee, the premium cost will be higher.
Jurisdiction of operation too plays a vital role in determining the cost.
Experience of the Professional
The professional’s ability to provide accurate advice, manage client’s expectations, recognize and mitigate client disappointment etc., determines the premium amount.
The frequency and severity of claims are major determinants of professional indemnity insurance costs. Also, if the professional is unable to provide adequate remedial action, it shows a lack of risk management. All these reasons significantly affect professional indemnity premiums. It can also be said that past records help insurers weigh the risks and judge the premium calculation.
Level of cover
Finally, the type of cover you choose decides your premium. Like most things, the more goods you buy, the more you pay for them. Similarly, while choosing a cover, if you choose a comprehensive cover or include add-ons to the basic cover, the premium to be paid will be more.
While applying for professional indemnity insurance, ensure the actual practice is reflected. The insurance company is responsible for conducting due diligence. But, you as an applicant should aim to provide key details that help you get maximum coverage at the best rates. This practice will help the insurer develop an accurate picture of the necessary coverage for your business.