The remedial compensation practice for (professional) mistakes made has been present even before the introduction of Professional Indemnity Insurance which came in place around the 1700s in London. Professionals are always exposed due to harm or errors they could make in the fields of their work, which could in turn result in them being sued by their clients.
What are professionals
Professionals are individuals or firms who offer specialist services or advice to clients, such as Doctors, Accountants, Insurance Brokers, Nurses, Engineers, Architects, and many others.
What is Professional Indemnity (PI)
Due to the increased reliance of businesses on the contracted services provided by many occupations, the term “Professional” and its scope are demarcated. These days, the terms of contracts people get into with specialists, map out their rights. In other words, PI is an insurance product designed to provide indemnity to professionals following litigations arising due to their errors, negligence, omissions, and breach of professional duty. It can furthermore cover business interruption, legal fees incurred from being sued, and financial losses due to defamation.
Why is it important to have PI Insurance
Having this cover as a professional is important as in some countries it is mandatory to have it. For example, in some countries, insurance brokers, medical practitioners, and lawyers are required to have Professional Indemnity. In the case of insurance brokers, it safeguards against loss of money and protects a professional’s reputation. On the other hand, it boosts business as clients prefer working with companies that are able to remedy their faults. In the medical space, patients prefer to be treated by a doctor who has PI so that if something goes wrong, they shall get compensated.
Lastly, in countries where it is mandatory for all associations/professionals to have their respective PIs, their businesses and economies grow, and professionals are reputable to even trade internationally.
How to assess the limit of cover
Having an adequate limit of indemnity is crucial because failing to do so could result in large amounts of uninsured or self-insured risk for the insured. This is to say, the exposures to loss need to be well-read and counted by advisers of the firm. At this level, the firm’s exposure to risks is determined by professional advice from an Insurance Broker or from an Accountant or based on past claims.
In some other instances, sectors may be guided by their respective associations or regulator to determine the limit of cover. For example, insurance regulators usually prescribe a minimum limit of PI insurance coverage for insurance brokers.
Challenges Around PI Insurance
PI insurance is a special type of insurance that does come with its scope of challenges:
- PI insurance requires a lot of technical know-how, which can be challenging as most sectors seeking this cover come from different spectrums of professionalism and require a cover that understands their specific and unique needs.
- Another complexity around this cover is the lack of capacity of insurance within the country of trade, whereby covers need to be sourced from international markets. That is, local insurance companies oftentimes participate in fronting arrangements with other markets. Furthermore, the hardening and stringent regulations and increasing legal requirements remain key contributors to complexity across the globe.
- And finally, the lack of awareness regarding the importance of this cover. In some countries, there is a lack of enforcement of regulations that oblige professionals to have a PI cover. Hence, many professionals are not willing to take out this insurance. Furthermore, the high costs that are often associated with PI cover lower the appetite to take on this insurance even more, especially for small firms with limited resources.
How to arrange for PI cover
PI cover is classified as one of the special types of cover in the insurance industry. It can be challenging for a firm to engage directly with an insurer as it requires a lot of technical advice that only Professional Intermediaries can assist with. It is therefore recommended that firms engage an Insurance Broker when dealing with PI Insurance to advise on and arrange for the cover on their behalf.
Mathabo Molapo Sethojane | Short Term Manager – Corporate Division | Minet Lesotho
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