Choosing the appropriate Sum Insured (or Indemnity Limit) for your Professional Indemnity Insurance policy can be problematic. It is important that close scrutiny be given to the adequacy of the selected sum insured when renewing or taking out a new Professional Indemnity policy. Under Insurance can lead to considerable financial loss to both you personally and your business. Some questions to consider when considering the appropriate sum insured for your business:
• Has your business grown in size since your last sum insured review? If so consider an increased limit.
• In a worst-case scenario, if something went wrong, what would be the financial loss to third parties?
• Bodily injury claims can be expense to both defend and settle, are you involved in an industry with potential exposure to bodily injury claims? (eg. Medical Professions, Architects, Engineers, Personal Trainers).
• What is the potential for consequential economic loss to any third party? Think not only about your clients but also third party users of your clients facilities.
• Do you have a vast number of clients where you perform a similar service, systematic errors can lead to multiple claims?
• Do you handle sums of money on your client's behalf, such as an accountant's trust account? Losses due to fraud and dishonesty of employees is a major professional indemnity exposure in this situation.
• What is the level of potential defence and investigation costs incurred by or on your behalf over the life of the claim?
• Is the policy limit provided by your policy 'Inclusive' or 'Exclusive' of costs? (if an Inclusive limit is all that is available then you should consider a higher limit)?
• How many defendants are likely to be party to a claim or action? The more parties to an action the more difficult and costlier it is to settle a claim (for example large construction projects).
• What is the overall contract/project value of your largest contracts? While you may play only a small part and only earn a small amount of fees your acts, errors or emissions could delay the entire contract/project leading to significant loss.
• How long have you been practicing? Your exposure increases the longer you practice, in some cases it may take years before a liability becomes apparent to the Insured (for example a fault in building design)?
• Have you made any acquisitions over the past 12 months? If so has there been a significant increase in exposure to your business in terms of both services offered and size of your practice?
• Have you signed any contracts which require you to have an increased sum insured?
• Has legislation changed that requires you to carry a minimum Professional Indemnity policy limit?
• Does your Professional Association require to you carry a minimum Professional Indemnity policy limit?
It is important to note that most Professional Indemnity policies have an Under Insurance or Average Provision which applies where the amount required to dispose of a claim exceeds the limit of the sum insured in the policy. When this occurs then insurer is liable only for a proportion of the total costs and expenses. This shall be the same proportion of the total expenses as the policy limit bears to the total amount required to dispose of the claim. Think through these issues carefully before when considering your professional indemnity limit.
• Has your business grown in size since your last sum insured review? If so consider an increased limit.
• In a worst-case scenario, if something went wrong, what would be the financial loss to third parties?
• Bodily injury claims can be expense to both defend and settle, are you involved in an industry with potential exposure to bodily injury claims? (eg. Medical Professions, Architects, Engineers, Personal Trainers).
• What is the potential for consequential economic loss to any third party? Think not only about your clients but also third party users of your clients facilities.
• Do you have a vast number of clients where you perform a similar service, systematic errors can lead to multiple claims?
• Do you handle sums of money on your client's behalf, such as an accountant's trust account? Losses due to fraud and dishonesty of employees is a major professional indemnity exposure in this situation.
• What is the level of potential defence and investigation costs incurred by or on your behalf over the life of the claim?
• Is the policy limit provided by your policy 'Inclusive' or 'Exclusive' of costs? (if an Inclusive limit is all that is available then you should consider a higher limit)?
• How many defendants are likely to be party to a claim or action? The more parties to an action the more difficult and costlier it is to settle a claim (for example large construction projects).
• What is the overall contract/project value of your largest contracts? While you may play only a small part and only earn a small amount of fees your acts, errors or emissions could delay the entire contract/project leading to significant loss.
• How long have you been practicing? Your exposure increases the longer you practice, in some cases it may take years before a liability becomes apparent to the Insured (for example a fault in building design)?
• Have you made any acquisitions over the past 12 months? If so has there been a significant increase in exposure to your business in terms of both services offered and size of your practice?
• Have you signed any contracts which require you to have an increased sum insured?
• Has legislation changed that requires you to carry a minimum Professional Indemnity policy limit?
• Does your Professional Association require to you carry a minimum Professional Indemnity policy limit?
It is important to note that most Professional Indemnity policies have an Under Insurance or Average Provision which applies where the amount required to dispose of a claim exceeds the limit of the sum insured in the policy. When this occurs then insurer is liable only for a proportion of the total costs and expenses. This shall be the same proportion of the total expenses as the policy limit bears to the total amount required to dispose of the claim. Think through these issues carefully before when considering your professional indemnity limit.
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