Money Tips with Money Matchmaker®

Professional Indemnity Insurance

Written by

Shaun McGowan

What is professional indemnity insurance?

Professional indemnity insurance is a type of business insurance designed to protect professionals who offer advice or services in Australia. In the event that a client suffers a financial loss as a result of your actions, professional indemnity insurance provides cover for your legal costs and any payable damages.

How does professional indemnity insurance work?

In Australia, qualified professionals are legally required to provide advice and services to an acceptable professional standard. If a client believes you have not acted in a suitable manner, they may take out a negligence claim against you. Professional indemnity insurance works by:

  • Providing cover for legal costs in the event of a negligence claim
  • Providing cover for any compensation payable to the client if the claim is successful

This type of professional insurance can cover legal costs regardless of whether the claim is justified or not - some professionals may be subject to many such claims even where none are successful. Ultimately, professional indemnity insurance works by allowing you to maintain operation in your profession without restricting cash flow due to ongoing legal disputes.

What does Business Insurance cover
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: In some professions, professional indemnity insurance is a legal requirement, or a condition of registration or membership of the governing body.

Professional indemnity insurance and negligence claims

Negligence is determined in legal terms by a failure or breach of duty or care which results in damages to an individual or entity, either through carelessness on the part of the professional, or through lack of information or incorrect information presented to the client.

Professional indemnity insurance covers various forms of negligence claims:

  • Inappropriate or inaccurate advice or information
  • Mistakes made while performing a service
  • Failure to deliver a service to an acceptable standard
  • Failure to offer appropriate advice

How does a negligence claim affect a business?

Negligence claims do not need to be proven to be brought against a professional in Australia, the client only needs to believe the professional has acted negligently in their advice or services. While this does not mean all claims will be successful, it does mean a string of claims can prove costly to defend.

In this situation, expensive court proceedings and legal teams can limit your ability to operate, which ultimately will lead to greatly reduced profits. As reputation is also a core part of any professional’s services, ensuring proper cover will allow you to defend yourself sufficiently against any unjustified negligence claims.

Equally important is the issue of negligence as a result of employee carelessness. For example, you may offer quality legal advice to a client, but one of your employees may then fail to deliver crucial documents to the client.

Be proactive about managing debt with Money Matchmaker
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: Professional indemnity insurance provides cover not just for your own possible negligence, but for any claims brought against your employees as well.

What does professional indemnity insurance cover?

Professional indemnity insurance policies cover a range of costs associated with claims of negligence, including:

  • The cost of legal fees
  • The cost of damages
  • The cost of any investigations resulting from a claim

Depending on your specific policy, you may also find professional indemnity insurance covers certain incidents specific to your profession, such as:

  • Breach of duty
  • Damages resulting from employee negligence or dishonesty
  • Slander or libel cases for media professionals
  • Breaches of trading acts, including consumer, competition, or Fair Trading Acts
  • Personal defamation cases
  • Failure to meet contractual liability
Improve your credit score with Money Matchmaker
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: Professional indemnity insurance can cover both the legal costs of defending a claim - whether it is justified or not - plus any damages you may have to pay to a client.

What isn’t covered by professional indemnity insurance?

In general, most types of insurance policy won’t cover incidents which arise as the cause of malicious or knowledgeable action. In the simplest terms, if you intentionally commit a breach of duty, you cannot claim cover through your policy. This includes:

  • Employee injuries - this is covered under compulsory Workers’ Compensation Cover.
  • Action which directly conflicts with Australian law
  • Punitive damages as the result of excessive negligence
  • Intentional damages caused by professionals with full understanding of the consequences
  • Asbestos-related damages or injury

Example of what is covered by professional indemnity insurance

CoveredNot covered

Breach of privacy or confidentiality

Employee injury

Intellectual property infringement

Intentional damage

Defamation, slander, and libel claims

Contractual obligations

Lost or damaged documents

Bankruptcy

Claims investigation costs

Asbestos-related claims

Breach of duty

Who needs professional indemnity insurance?

Australian law provides clients the right to make claims on the quality and accuracy of any advice or service offered by qualified professionals. Anyone who works as a qualified professional in Australia, and offers advice or services as part of their profession, should consider the need for professional indemnity insurance.

In general, this may simply cover the cost of any legal proceedings and potential damages in the event of a successful claim, however certain inclusions and specific policies may be required for various professionals due to the number of potential liabilities they may face.

Some common professions and reasons for professional indemnity insurance include:

  • Artists or graphic designers defending a claim for copyright infringement
  • Journalists defending a claim for libel or slander in the media
  • Accountants defending a claim for improper or inaccurate auditing of accounts
  • Personal trainers offering advice which results in injury
  • Financial advisers offering advice which results in financial loss
  • Tradies defending a claim of failure to deliver adequate service
  • Medical professionals defending a claim for historic negligence
Small business loans with Money Matchmaker
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: Runoff Cover is a crucial part of professional indemnity policies, particularly for medical professionals. Runoff Cover often provides lifetime protection for claims of negligence brought against you during retirement or when you are no longer practising.

Most Common Professional indemnity insurance by trade and profession

Trades & ServicesProfessional Occupations

Carpenter

Accountant

Cleaner

Beauty Salon

Concretor

Bookkeeper

Couriers

Disabilities Assistant

Electrician

Hairdresser

Gardeners

IT Professional

Handyman

Real Estate

Home Builder/Renovator

Life Coach

Mechanic

Management Consultant

Painter

Massage Therapist

Plumber

Migration Agent

Tiler

Personal Trainer

Professional indemnity insurance by business size

Professional indemnity insurance can be an essential form of protection for businesses of any size. Each type of business - from small startups to large corporations - face their own potential issues through negligence claims, and may require cover for various reasons.

Professional indemnity insurance for small business

  • Limited cash flow and security
  • Reputational damage can prevent growth
  • Less-established processes
  • Cheaper or unfamiliar equipment
  • Limited knowledge in the professional field
Car loans for used cars with Money Matchmaker

Professional indemnity insurance for medium-sized business

  • Greater number of staff, and therefore potential risk
  • Reliant on growth to support both the business and employees
  • Reliant on reputation to maintain growth and client relationships
  • Reduced supervision of multiple employees
  • Established databases with greater potential for information breaches
Finding a car loan through a car dealership

Professional indemnity insurance for corporations and enterprises

  • Stricter regulations and operating procedures to adhere to
  • Complexity of the business presents much greater risk
  • Increased reliance on business continuity by staff and shareholders
  • Wider customer base with greater potential opportunities for negligence
  • Greater public visibility and reliance on a clean reputation
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: Professional indemnity insurance can be a vital form of security for businesses of all sizes, particularly where the potential for compensation claims grows exponentially in relation to business growth.

Top 5 reasons for professional indemnity insurance

1. Legal and professional body requirements

For some professionals in Australia, such as medical and legal practitioners, professional indemnity insurance is a legal requirement of practising or registration.

Other professional associations choose to subscribe to a Professional Standards Scheme (PSS), administered by the Professional Standards Council. A PSS limits the liability of professionals who fulfil all its criteria - one of which is that they have adequate professional indemnity insurance in place.

2. Personal asset protection

If a client makes a professional negligence claim against you, your legal costs alone could run into the tens of thousands - even if the claim is found to be baseless. If the claim is successful, you may be required to provide payment to cover the financial loss the client has suffered as a result of your negligence.

3. Professional reputation protection

If a client makes an allegation of negligence and initiates legal proceedings against you, the reputation of your business is severely at risk. A business could be irreparably damaged by a negligence claim, regardless of whether the claim is founded in truth.

4. Retroactive cover for past claims

Retroactive cover provides protection for professionals in sectors where claims can be made years after advice has been given or service provided. Retroactive cover may be unlimited, or may start from a specific date (in which case, claims relating to advice given before that date will not be covered).

5. Runoff cover for protection in retirement

Similar to retroactive protection, runoff cover can provide protection once you are no longer practising, i.e. in retirement. This extended cover is important for professionals in sectors like accounting, law and medicine where claims may be made long after you have given advice or provided a service.

How much is professional indemnity insurance?

The cost of all types of business insurance is called a premium, and varies between policies and insurers. To reduce the cost of premiums, business-owners can often combine several types of business insurance into a single policy which is tailored for their specific needs and cover requirements.

You can learn more about premiums and the cost of business insurance in our guide.

Get help with your finances if you have bad credit with Money Matchmaker

Other types of professional cover

Professional indemnity insurance is only one type of business insurance available in Australia, some of which are compulsory depending on how your business operates, including:

Where to get professional indemnity insurance in Australia

Professional indemnity insurance is available through authorised insurance companies. Alternatively, you may wish to speak to a licenced insurance broker to find you a suitable policy at the most competitive rate. Insurance brokers must be licensed and listed on the Australian Securities & Investments Commission's professional register.

Brokers will charge a fee for their services, however working with a broker can greatly reduce the time spent comparing insurance options, while ensuring all appropriate cover for a business is included in its selected policy.

Australia
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: An insurance broker uses their expertise to identify the various risks a professional or business may be exposed to, then match these with an appropriate insurance policy from a range of insurers.

Summary

Professional indemnity insurance is the equivalent of product liability insurance for service-based businesses. If you are a qualified professional providing advice or a service in Australia you have a legal responsibility to deliver that service to an acceptable professional standard.

If you make a mistake, or if a client suffers financial losses as a result of your actions, you could be sued for professional negligence. Professional indemnity insurance covers both the legal costs of defending a claim, plus the damages you have to pay to the client.

FAQs

What is covered by professional indemnity insurance?

Professional indemnity insurance covers financial loss, injury, and damage which results from negligence on the behalf of a professional in Australia. It can cover both the legal fees arising from a negligence claim, and the resultant reparative costs should the claim be successful.

Do I need professional indemnity insurance?

Some professionals require professional indemnity insurance by law, while for others it may be a requirement by the state or industry body. However, any professional who offers advice or services may be subject to a negligence claim, and this type of insurance is specifically designed to cover those costs.

Does professional indemnity insurance protect my employees?

In some cases, yes. Professional indemnity insurance protects you and your employees from damages resulting from negligence on their behalf. However, it does not protect you in the event of employee injury, which will need to be covered under Workers’ Compensation Cover.

Does professional indemnity insurance only protect my business?

No, it can also protect you personally. Not only does this type of insurance protect your reputation, it also prevents limited liability companies from being personally sued for damages. If the court finds you guilty of negligence, this means your home and other assets could be at risk.

Looking for a business loan? Get the best deals

FIND YOUR LOAN

About Money.com.au

Money.com.au want to make managing money easy and fun! By giving Australians simple tools so they can make the best decisions they can about their money.

We understand that the world of finance is complex, and offer free, extensive guides on Personal Loans, Car Loans and Business Loans, along with tools like our Budget Planning Spreadsheet to help you better manage and understand personal finance.

About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

Address

Money Pty Ltd,
Suite 3, Level 2,
1 Taylor Street,
Moorabbin, VIC, 3189 Australia

Company

Money Pty Ltd trading as Money
ABN: 42 626 094 773
ACL: 528698
AFCA: 83955

© Copyright 2021 Money Ltd.



Disclaimer

Money Pty Ltd (trading as Money.com.au) provides information about credit products and is authorised to do so as the holder of Australian Credit Licence 528698. Money.com.au does not compare every Lender in Australia. We are not a broker or credit provider and when we provide information via this website, we are not providing you with a recommendation or suggestion about a particular credit product. When you apply for a credit product via the Money.com.au website, you are not applying with us, you are applying directly with a Lender Partner. Before entering into any credit product from one of our Lender Partners, you should confirm the rates and product information with the Lender. All information on this website is general advice only and does not take into account your objectives, financial situation or needs. You should consider whether this advice is right for you and we encourage you to seek independent financial advice.