Many a times, it so happens that customers claim compensation from professionals and business owners for a mistake from the business. In such a situation, professional indemnity insurance can help professionals and business owners overcome the risks related to compensation.
What is Professional Indemnity Insurance?
Professional Indemnity Insurance is an insurance policy providing risk coverage to professionals against any probable claims arising due to their mistakes or errors. If a third party receives any harm or damage to life or property due to negligent professional practices, professional indemnity insurance covers the risks caused to professionals.
Types of Professional Indemnity Insurance
Human error is a common problem; however, at times, a professional can be sued by the client for some error that was beyond his control. To get protection from such situations, professional indemnity insurance can be availed under different heads. Some of the types of professional indemnity insurance are:
Malpractice Insurance: This mostly offers coverage to physicians and licensed health care professionals like a dentist, nurse. This is useful for professionals whose any wrongful practice can lead to bodily injury and other issues.
Errors and Omissions Insurance (E&O): This is mainly meant for business professionals like attorneys and architects. It covers the financial risks associated with negligence, errors and omissions. It also covers defence costs.
Civil Liability Cover: Civil indemnity covers all the risks not included in the basic insurance cover.
All the liabilities related to defamation, contract breaching, slander and libel, intellectual properties and any personal harm due to compromising on security – will be covered by civil indemnity insurance. The civil liability cover also has some exclusions which consist of liability on the part of the employer and the public.
What all Professional Indemnity Insurance Covers?
If a consultancy provider is sued by his/her client, the business can run into irrecoverable financial losses. Hence, all firms and professionals need an insurance against the damage to lower the risks involved. Let us look at the coverage offered under professional indemnity insurance:
- Any legality involved due to bodily injury or death caused by professionals while offering their services
- Defence costs, its fees and other expenses
How Professional Indemnity Insurance Functions?
Professional indemnity insurance helps professionals save money in case they get into some trouble with their clients. Let us understand how this insurance works and how one can get the best deal:
- Evaluate your clients, and the kind of trouble you can get into if any client files a case against you
- The evaluation will help to decide the insured amount which can be done in consultation with the insurer
- Check and compare the insurance companies and plans offered
- The premium to be paid will depend on the sum insured
- Submit the proposal form along with the required documents
- In case of any eventuality, immediately inform the insurance company
- Submit the claim form and other documents
- After an assessment, the claim can be either accepted or rejected
- If not satisfied with the case, you can approach the court of law
Companies dealing with professional consultants, and other professionals dealing with clients should make it a point to avail professional indemnity insurance. Some of the groups that can purchase professional indemnity insurance are:
- Professionals working in health sector, architecture, accounting
- Lawyers, attorneys, solicitors, counsels
- Organisational bodies like hospitals, medical institutions, legal firms, construction companies, auditing firms
- Brokers, management consultants, engineers, IT professionals, etc.
- Some specific plans designed for software and website developers
Professional Indemnity Insurance Claim Process
In case of a situation where you have to make a claim under professional indemnity insurance, one should be aware of the steps to be followed:
- On the occurrence of any eventuality, you should inform the insurance provider as soon as possible
- In case of receiving any legal notice, you should share the document with the insurance company immediately
- Submit the duly filled in claim form along with other required documents
- After an assessment, if the insurance company finds it a fit case, it will approve the claim, else reject it
- If you are not satisfied with the case, you can approach the court of law
Documents Required for Claim Process
Let us look at the documents required for filing a claim in case of any eventuality:
- Duly filled in claim form
- Legal notice, if served by the client
- Registration certificate of professionals
- Certificate for institutions like hospitals
- Clients’ details to evaluate the degree of financial loss
Cases Where You Can’t Claim Professional Indemnity Insurance (Exclusions)
Professional indemnity insurance does not cover all kinds of cases and situations. Some of these exclusions are:
- Damage with an intent to tarnish the image
- Infringement of trademarks, copyrights and patents
- Terrorism and war damage
- Abuse of substance like alcohol and drugs while offering services
- Fines and penalties
- Criminal activities
Companies Offering Professional Indemnity Insurance
With people becoming more aware about their rights and duties, professional indemnity insurance is becoming popular with professionals. Some of the companies offering professional indemnity insurance in India are:
- ICICI Lombard
- Reliance General Insurance
- Bajaj Capital
- Oriental Insurance
- United India Insurance
One should consider all the aspects relating to professional indemnity insurance before finalising a plan. Some of these points are:
Retro Active Date: Some insurance providers provide a Retro Active date clause in their policies. In simple terms, this is the duration before the policy commences its actual tenure. Since the policy only covers the financial losses incurred during the tenure, Retro Active clause provides benefits of claiming the sum assured for the errors happened in that period (Retro Active). However, the policyholder has to ask for such a claim during the period of the policy.
Tail Reporting: Some insurance providers also provide a tail reporting clause. Such a clause offers the benefits of availing claims for the incidents occurring within the policy duration but were not reported until the policy was exhausted. This would be valid only in case the policy is not renewed for that specific period. However, this would lead to paying higher premiums which would be decided at the commencement of the policy.
Transferring Dates to New Policy: Some policies include a clause known as “prior acts” which leads to the elimination of the tail reporting clause. Such a clause allows the policyholder to transfer the Retro Active date to a new plan from the older one and is usually less costly.
Group Policies: Professional indemnity insurance can also be availed as a group insurance which covers the members of a single profession working in a professional association or firm. It also offers a premium at a discounted rate as and when the new members are added.
Advantages of Buying Professional Indemnity Insurance
Professionals who are dealing with clients always face the risk of being in some trouble, thus, they should surely consider availing professional indemnity insurance. Some of the advantages of this insurance are:
- Covers the requirements of different professional services and professionals
- Provides comprehensive coverage against various types of risks
- Covers legal costs and other expenses
- Can increase or decrease the sum insured mid-term
Q1. Why do I need an indemnity insurance?
An indemnity insurance policy can help you cover losses you might face in your professional service.
Q2. Would I need to spend a lot if I avail this insurance policy?
Indemnity insurance policies generally help save money compared to what you end up paying for the legal hearing and compensation to clients.