When mistakes happen, consultants and professionals of all kinds can be exposed to liability and suffer financial losses. Professional indemnity insurance protects professional and consultants against expensive lawsuits and costly settlements.
Broadly speaking, professionals are those with specialized skill or knowledge upon whom clients depend on for accurate advice or the proper rendering of professional services. This includes a broad range of people from licensed professionals like insurance brokers, realtors, and lawyers to other professionals and consultants like marketing consultants, recruitment agencies, designers, SaaS software providers, copywriters, and much more.
If a client alleges that you’ve made a mistake or failed to meet the strict legal duties you owe as a professional, they could initiate a lawsuit to recover any financial damages they may have suffered. Without the proper insurance policy in place, this could place a huge burden on your business that it may not be able to recover from.
What is Professional Indemnity Insurance?
If you’re a professional or consultant, clients depend on your for accurate advice and expert services in accordance with your training and education. If you make a mistake or otherwise fail to live up to your legal duties as a professional, you may cause financial loss to your clients which they would seek to recover from you via a lawsuit.
Professional Indemnity insurance is an overarching type of liability insurance intended to insure against any actual or alleged failure to properly exercise your profession in accordance with your legal duties owed to clients.
When you’re on the sharp end of a lawsuit, your professional liability insurance policy will step in and offer (among other things) 2 very important covers:
- Supplementary/Defense Costs: This coverage is often overlooked but is one of the most important covers offered by your liability policy. With this, the insurance company will take charge of your legal defense and pay for any legal expenses required to prepare and defend against a lawsuit. This might include things like lawyer fees, hiring expert witnesses, interest payments on judgement amounts, etc.
- Settlement: If you should lose in court, the insurer will pay for any settlement or judgements awarded to the plaintiff up to your chosen policy limit.
The most important thing to note is that the defense costs are typically paid over and above your policy limit. Defense costs are paid for all lawsuits – even ones that are without merit – potentially saving you thousands of dollars in lawyers’ fees.
Depending on the profession, the insurer, and jurisdiction, professional indemnity insurance is also sometimes called PI insurance, professional liability insurance, or errors & omissions insurance.
Do I Need PI Insurance?
The short answer is yes as this type of liability is not covered by most Commercial General Liability (CGL) or Public Liability policies. For most licensed and regulated professionals in Hong Kong, this type of liability insurance is mandatory before you’re allowed to do business. But even if it’s not a requirement (i.e. for designers, recruiting firms, marketing agencies, etc.) you should still purchase professional liability insurance to protect your business and your clients.
Hong Kong today, much like the rest of the world, is becoming increasingly litigious. Clients are more ready to sue and judges are beginning to award ever-increasing settlements. Not to mention lawyers are starting to charge more these days.
And despite your best intentions, errors are unfortunately inevitable. Even something as simple as missing a deadline or a little typo can expose your business to a costly lawsuit from your clients if they suffer a loss because of an error in your work.
With the proper professional liability insurance in place, you can rest assured that the insurance company will take care of any defense, settlement, and other costs related to lawsuits alleging any deficiencies in your work. This insurance ensures that your business is protected and your clients have a source of financial recourse for any mistakes you might make.
What Are Some Risk Management Steps I Can Take?
While insurance is a critical part of the risk management puzzle, we don’t believe that is all you need. There are some steps you can take to mitigate these types of claims from even starting:
- Contracts & Documentation: All professionals should have written contracts spelling out the expectations of both parties along with deadlines, fees, etc.
- Quality Control: Have proper quality control measures in place to double and even triple check your work for mistakes before sending them off.
- Communicate: Have open and clear lines of communication with clients to prevent misunderstandings.
How Much Does Professional Indemnity Insurance Cost?
As with most insurance policies, the cost of PI insurance varies based on several factors such as the insurer’s appetite for certain risks, market conditions, or their own internal loss experience. Most of these factors are outside of your control but there are a few known factors specific to your business that could influence your professional liability insurance premiums:
- Annual Revenues: It stands to reason that the larger your annual revenues, the more risk you’re exposed to.
- Contract Size: Generally speaking, the larger the client, the more is at stake. Larger clients are also more likely to sue for any mistakes causing them financial loss.
- Type of Profession: Different professions entail different levels of risk – professional liability insurance for a graphic design firm working with small businesses will likely cost much less in premiums than a law firm working with large clients on large transactions.
To get a no-strings-attached quote for your particular business, contact a licensed professional indemnity insurance advisor at Trusted Union.