05 Feb Professional Indemnity – is your policy enough?
It still surprises us the number of Professional Indemnity risks we see where the cover is not appropriate for, nor correctly constructed for, a client’s needs.
Invariably we find that this arises from one of the following:
- the cover has been arranged by an inexperienced broker;
- the broker uses a basic declaration that doesn’t prompt the client to review their business;
- the client arranges cover directly online.
Like all other professions, experience matters. Engineers have specialities much the same way as the medical profession has. Yet for some reason, when people are looking to insure their business they often think specialisation doesn’t apply to insurance professionals.
Insurance Brokers and Insurers alike have specialities and it is critical to engage a broker that understands the nuances of your particular profession:
- the contractual issues you may encounter
- can explain how the cover works so you know what your obligations are
- has been involved in professional indemnity claims
- knows the insurers that are best suited to your risk.
Dealing with inexperienced insurance brokers can lead to your claim being limited or denied.
As a simple example, if we were approached to look at an engineering risk for a prospective insured. The insured had been with a large broking firm for many years, they were diligent in filling out their insurance documents and sending them back to the broker. In turn the broker sent them their renewal quotations each year and the client accepted.
The insured was involved in storm water and sewerage design. The cover recommended by their broker contained amongst other things, a pollution exclusion.
The exclusion was extremely broad in that it was “any pollution or contamination” and there were no definitions surrounding what constituted pollution or contamination so it was open to a “reasonable person’s” interpretation. In effect, if any claim arose that involved pollution or contamination, the client had no cover. Not exactly ideal if you are designing stormwater or sewerage systems. A broker experienced in engineering risks would know that such an exclusion is unacceptable and would not have presented such terms for consideration. The prospective client was horrified that after many years of being with this broker they had failed to understand the risks of their business.
Signing a declaration versus completing a full proposal
We often hear complaints from clients and prospective clients about the length of proposal forms and the information required by us. “Other brokers don’t want us to fill out forms they just ask us to sign a declaration”. Professional Indemnity is a complex cover. There are significant risks in simply signing a declaration versus completing a full proposal form. What many insureds fail to understand is that the documentation you submit forms the basis of the insurance contract and insurers will rely on that documentation in determining whether or not a particular circumstance is covered. Simply signing a declaration doesn’t make you think carefully about your past and proposed business activities and risks, nor does it allow an insurance broker to reasonably assess those risks and develop appropriate cover. Declaration renewals are generally not reviewed by brokers or insurers as to whether cover is appropriate.
Completing a full proposal not only allows you to carefully review and document both your past and proposed business activities and risks but also allows your insurance broker to assess your particular risk profile, changes thereto and ensure that cover is developed for your particular risk. Working through a comprehensive proposal each year should be part of every business’ risk management and mitigation process. Simply signing a declaration is a lazy way of renewing your insurance that exposes you to significant risk. Over the years and through our significant experience, Perrymans have developed and continue to develop our bespoke documentation for our specialisations that delve into particular business practices and deal with policy exclusions and industry changes so that we understand your risk and develop the appropriate protection.
Arranging Professional Indemnity Online
As we become time poor and technology progresses, many insureds have looked to buy insurance covers online. This is fraught with danger as clients are not experts in insurance nor do they fully understand the pitfalls of certain covers. Whilst we look to embrace technology, it cannot replace the invaluable experience and advice offered by a suitably experienced insurance broker. Online insurance facilities simply can’t cater for the nuances of many occupations nor do they allow for explanations or the provision of advice. Invariably insureds purchasing online covers use what they consider to be the “nearest fit” occupation, which doesn’t allow for explanations or expansion of activities, nor does it allow for covers to be modified to suit. Despite this, many think “they have insurance so they are covered”. A simple example of this is a risk presented to us some years back. The business involved a travel agent who took their clients on mountaineering expeditions. They did everything from arranging travel to leading the expeditions.
We requested detailed information given the exposure, reviewed with specialist markets and provided the prospective client with terms and recommendations that covered the proposed activities. The prospective client then advised us that they had obtained quotations online for less than $1000. Our terms naturally were significantly more. As it transpired, the prospective client had selected the occupation that in their opinion was the “nearest fit” as this was all the online system would allow. It didn’t allow for all activities to be declared, particularly the mountain expeditions. The prospective client was of the view that they were able to obtain “insurance at a much cheaper price” and they didn’t take in to account that it may not have been suitable and wasn’t going to provide the protection they are looking for. We evaluated the “online” documents and detailed to the prospective client the major issues of why the cover would not respond to the significant risks of their business. Without the benefit of our knowledge, experience and advice the prospective client would have been left considerably exposed.
Don’t leave your insurance questions unanswered, call M2M Risk & Insurance on Freecall 1800 24 33 12 or send us an email firstname.lastname@example.org
Important disclaimer: The views expressed are those of the author only and do not necessarily reflect those of M2M Risk. This article provides information rather than financial product or other advice. The content of this article, including any information contained on it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
All information is subject to copyright and may not be reproduced without the prior written consent of M2M Risk & Insurance Pty Ltd.