What is Professional Indemnity Cover?
Professional Indemnity Insurance is a type of business insurance, typically for organizations that provide consultation or any professional services to its clients. Professional indemnity insurance covers claims made by the businesses in case their clients have sued them for making them endure any significant financial loss due to their advices and services.Read more
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Professional indemnity insurance works to protect businesses and individuals who provide consultation and services with the compensation for full and hefty costs arising from the loss that they have caused to their client. The coverage provided by the insurance company focuses on the alleged failure of the service delivery by the company, which has led to the financial loss due to errors and omissions in the service or consultation.
The insurance company handles the confidential data of its clients and their intellectual property to analyze before it provides consultation and required services. Keeping in mind the confidentiality of such information, it becomes very important for a business to take up professional indemnity insurance or professional liability insurance.
Some companies seek business with consultation and service providers demand that the individuals or businesses need to be covered by professional indemnity insurance. This is in order to lower the risk of not getting compensated for the losses caused by the business during the tenure of their service. Some individuals or organizations that need to have such insurance are accountants, financial advisors, healthcare professionals, solicitors, architects, chartered surveyors, etc.
Most organizations decide to take up professional indemnity insurance keeping in mind their own protection against coughing up a large sum of money, in case they have caused their clients a huge loss due to their own mistakes and have to compensate for that amount. It does not matter if you share a good business relationship or bond with your clients. A mistake that may lead to a financial loss will disrupt the peace between you. Therefore, it is very important to take up professional indemnity insurance for protection.
How Professional Liability Insurance Works?
The professional liability insurance works on the concept of protecting professionals and businesses against any claims initiated by their clients with respect to the professional services or consultations offered. The claims may arise due to negligence, errors, malpractice, etc. in offering professional advice or services to your clients resulting in a substantial financial loss. However, professional indemnity insurance mostly covers the claims related to incidents that occurred during the policy period.
Professional indemnity cover is provided majorly on claims made basis. It indemnifies the professional liability of the insured for only the claims made during the policy period on account of covered malpractices, negligence, errors & omissions, violation of good faith or misrepresentations committed within the same policy term. Any claims filed for an incident occurred before the activation of the policy coverage may not be covered by the insurance company.
However, few professional liability insurance plans may offer coverage to a retroactive date. In such cases, claims can be filed for incidents that occurred during the retroactive period once the professional indemnity cover gets activated. Therefore, it is beneficial to opt for professional liability insurance with a retroactive date as old as possible.
Who Needs Professional Liability Insurance?
A wide range of businesses needs professional liability insurance. For some businesses, it may be crucial to obtain a professional indemnity cover. In some cases, the clients may have a contractual clause requiring the business/ professional service provider to own professional liability insurance to work with them.
Businesses who directly work with customers are advised to have a professional indemnity cover. This is because customers may sue the business or make a claim as per their own perspective even if no mistakes or errors have been made at your end. For instance, a customer may sue an interior designer accusing him of providing inferior service and not designing the house as promised.
Take a look at some of the businesses and professionals who need professional liability insurance below:
|Types of Business/ Service Provider||Businesses or Professionals|
|Brokers||Real estate brokers|
|Mental health counsellors|
|Financial Services||Chartered accountants|
|Information Technology (IT)||Software developers|
|Legal Professionals||Notaries public|
|Quality & Testing||Quality control specialists|
|Non-destructive testing analysts|
|Real Estate||Property managers|
|Food & Beverage||Restaurants|
|Salon & Spa||Beauticians|
|Third Party Business Administrators|
|Travel industry||Travel agency|
Benefits and Features of Professional Liability Insurance Plans:
With a plethora of features and benefits, Public Liability Insurance is becoming popular in the insurance sector. Here’s a rundown to the key benefits and salient features of Liability Insurance:
Various insurance providers offer group policies for professional indemnity cover. Members of a single profession will get the coverage. These policies also offer a discount of premium depending on the number of group members added under the group plan.
Professional Liability Insurance Policy covers all the legal liabilities arising out of negligence, omissions, or errors of any professional whilst rendering service that causes damage to the property of third-party or injury to the third-party itself.
Expenses Incurred for Defence:
Public Liability Insurance also covers all the expenses incurred for defence. This means, all the charges and fees applicable to your defence in the court, is paid off out of your sum insured. However, this feature is limited within the boundaries of India only.
The General Liability Insurance Policy is meant for professionals like:
Management consultants, Chartered Accountants, Financial Accountants, Solicitors, Counsels, Lawyers, Advocates, Interior Decorators, Engineers, Architects, Doctors, other medical practitioners, Medical establishments.
When will the Policy Cover?
This insurance policy is based on the claims that are made. It means that the professional indemnity insurance policy will only cover the claims that are made during the tenure of the policy. So, make sure you get your renewals done on time. Also, any financial loss due to a false advice, the negligence, or the faulty analyses will only be covered if those mistakes were made during the tenure of the insurance policy. Claims made before or after the period of the policy will not be covered.
How Much Professional Liability Insurance Cost?
The cost of professional liability insurance usually varies from one insurance company to another. This is because businesses in a variety of sectors and industries can avail personal indemnity cover making it difficult to have a fixed insurance rate. The policy is not universal for all kinds of businesses availing the coverage and hence there cannot be parity in their cost.
For example, the professional liability of an accountant is not the same as that of a medical surgeon. Hence, the cost of professional liability insurance for an accountant and the medical surgeon cannot be the same.
Factors Affecting the Cost of Professional Liability Insurance
A lot of factors are involved in determining the cost of a professional indemnity cover. To help you get a better understanding, here are some of the factors that affect the cost of professional liability insurance:
- Type of business
- Policy coverage
- Retroactive period of the policy
- Risk factor of the business
- Location of the business
- Age of the business
- Yearly turnover of the business
- Size of the business/ company in terms of the number of employees or clients
- Credit score of the business
- Claims history
What is the Retro - Active Date in a Professional Indemnity Insurance?
Some insurance companies have a retro - active date. The retro - active date is a period or number of days before the actual or date of inception of the professional indemnity insurance policy. They might cover the claims made during the policy tenure but the event or incident that caused the significant financial loss happened before the period. So, events happened during the retro - active period could be claimed if the claim is made during the tenure of the insurance policy. Mistakes are inevitable can happen anytime in any business. Professional indemnity insurance will be there to protect like by carrying the burden of the monetary compensation that is to be given to the clients by the organization. Such a policy is taken up by the following businesses and individuals –
- Notaries public
- Brokers from real estate
- Insurance agents
- Landscape architects
- Management consultants
- Third - party business administrators
- IT - Information technology service providers
- Quality control specialists
What is Civil Indemnity Insurance?
Some insurance policies cover more than the basic coverage. The professional indemnity or liability insurance will not cover defamation, slander, libel, any breach of contract, the breach of warranty, intellectual property, any personal injury sustained, security, the cost of contract, etc. However, the civil indemnity insurance policy will provide coverage for all these aspects under the “civil liability” cover. The employer’s liability and public liability are some of the exclusions from the list of things.
Tail Reporting Coverage
Tail reporting coverage, also known as extended reporting endorsements cover, is a type of insurance that covers the incidents that occurred within the tenure of the indemnity insurance but was not reported until the termination of the policy. Extended coverage is offered by some insurance companies if the insurance policy remains non-renewed for that time. Of course, the extended coverage gives rise to the premium, which has to be paid if the tail reporting coverage needs to be used for claims.
How can you Do Dates Transfer?
There is coverage called “prior acts” or “nose’, which transfers the retro-active date from an old policy to a new professional indemnity insurance policy. This transfer eliminates the need of purchasing a tail cover. The ‘prior acts’ cover is comparatively less expensive than the tail cover.
Professional Indemnity Insurance - The Perfect Risk Management Tool
The professional indemnity insurance policy is one of the best risk management tools available for businesses, as there is no better way than having an insurance policy pay off your debts or the money you owe to your client. Negligence and mistakes not only cost you your clients but also cost you a fortune. Professional indemnity insurance or a professional liability insurance policy helps manage your business and losses better without having to be sued or legally accused of major financial losses, which might lead to the fall of your entire business or your client’s entire business.
If you do not have professional indemnity insurance, you would either have to pay an amount equal to your client’s loss from you pockets, which might lead to the fall of the business or make the company bank corrupt or might have to face legal actions taken by your client because of to the mistakes you made.
In case you client faces a major loss and you have professional indemnity insurance, you might be able to convince your client to settle down with the payment and not make it a legal issue. It surely is an easy way out and has positive long-term impacts. It surely protects your professional reputation as an organization and leaves the window of opportunity for other clients to approach you.
General Exclusions of Professional Liability Insurance Policy:
Although General Liability Insurance is power-packed with various benefits, features and inclusions; however, it has some general exclusions. They are:
- If you’re under the influence of alcohol or drugs whilst rendering the services.
- Any criminal activity, violation of law, and fraud
- Any situation that is caused by or associated with AIDS.
- Nuclear perils and any war activities
- The financial loss you bear like loss of goodwill or market.
- Deliberate or willful non-compliance of the statutory regulations.
- Infringement of trademark, registered design, patent, trade name, plans, copyright.
- Usually, a Liability Insurance Policy covers civil liability claims. In case the claims arise out of any violation of law or any criminal activity, then the General Liability Insurance policy does not provide any coverage.
- Legal liabilities that arise out of any personal injury like wrongful eviction, defamation, libel, wrongful detention, slander, false arrest, etc.
Companies offering Professional Liability Insurance Policy:
The companies offering Public Liability Insurance Policy are as follows:
Reliance General Insurance Company:
Reliance Professional Indemnity Insurance Plan is quite popular because of its quick documentation and comprehensive coverage. All the legal expenses relating to the legal problems arising out of the services provided by professional service providers or professionals are covered. The Professional Indemnity Insurance by Reliance also allows the decrease and increase in the sum insured on a mid-term basis.
New India Insurance:
Public Liability Insurance policies are also offered by New India Assurance. These policies aim at financial protection of the professional in the case of any legal liability. The policy covers only civil liability claims. These legal liabilities can arise out of negligence or errors by you that result in any death or harm to the third-party or any damage to the property of third-party. New India Insurance Professional Liability Insurance also offers an option to avail the group policies.
TATA AIG General Insurance Company:
TATA AIG Errors & Omissions or Professional Indemnity Insurance Cover offers safety and security against the legal liabilities to the professionals. You can raise claims related negligence, omissions, or errors while rendering professional services. The Public Liability Insurance policy is also offered to Law firms, media companies, consultants, financial institutions, IT companies, BPOs and other professionals.
United India Insurance General Insurance Company:
Professional Indemnity Insurance Policy is offered to professionals like Lawyers, CA, Architects, Engineers, Doctors, along with establishments like clinics and hospitals by United India Insurance Company. The term of the policy offered by the insurance provider is 12 months.
ICICI Lombard Professional Indemnity Insurance Policies are specially designed for doctors. These policies cover legal cases that arise out of the death of any patient or injury to the patient due to negligence, error, or omission. The premium of this policy is based on the limit of the indemnity, ratio of limits, and risk group of the attending doctor. The policy’s jurisdiction is limited within the boundaries of the country.
The professional indemnity insurance protects you against any legal actions or threats, which a client, to whom you have caused a major loss because of your mistakes or ill advices, might press on you. It also saves you from paying a hefty amount of money as compensation to the clients for their losses. The policy also protects you by saving your professional image in public and among other existing and potential clients. Having this policy helps you manage your risks while leaving space for improvement by continuing the consultation and services to keep you in business. Get the professional indemnity or liability insurance and save your business and yourself from the embarrassment of failure due to significant amounts of losses to your clients.