Professional indemnity insurance - an overview

Professionals working in any industry are unlikely to go through their careers without making any mistakes. The risk of being sued for one such mistake makes the need for professional indemnity insurance a necessary evil - but is it more costly to have it or to avoid it?

Limiting liability: professional indemnity policies

Professional indemnity insurance is a long-term policy that is taken out by professionals who are part of an established discipline and offer professional advice or services to a third party.

This type of insurance is available to lawyers, financial advisers, IT businesses, those in the medical profession and many others. Check with your industry's governing body to see if you or your business requires professional indemnity coverage. For some industries it is compulsory to have professional indemnity insurance, especially for those working in medical professions.

Insurance by industry

Professional indemnity limits the liability of the policy holder in case of claims being made against them. It gives the holder a right of reply and protection against the claimant.

Each industry has its own set of risks and therefore the benefits of the policy will differ according to industry and insurer. For example, financial advisers can be covered against claims of insider trading or for client stock loss. Doctors can be protected against malpractice suites or misdiagnosis of illness and so forth.

The negatives of professional liability cover

The drawbacks associated with taking out professional indemnity insurance are widely publicised:

• The price of coverage is extremely high, even if the policy only covers a minimum two million dollar claim

• Professional indemnity policies are long term. If operation ceases earlier than expected then the holder will lose money

• Unless specifically included, many policies do not offer retroactive coverage. Therefore, the holder is not covered for past "unknown" claims. Including a retroactive clause in your policy is imperative; ask your insurer about this

• Policies are not able to cover every possible claim as not all possible claims can be anticipated, leaving the policy holder open to litigation

• If a professional fails to inform their insurer of previous claims against them, this may have an adverse effect. Continuous cover is the best way to avoid this pitfall

Each industry has its own governing body and regulator; it is best to contact them personally if you have any queries. However, for general information, advice and to report any suspect activity regarding provider misconduct you can contact the Insurance Ombudsman in your state.