Professional Indemnity Insurance: Questions to consider when setting your sum insured

• In a worst-case scenario, if something went wrong, what would be the financial loss to third parties?

• What is the potential for bodily injury claims, and even multiple injuries?

• What is the potential for consequential economic loss to any third party?

• What is the potential for multiple claims in any one policy year?

• What is the level of potential legal and investigation costs which may be incurred by a successful claimant over the life of the claim

• What is the level of potential defence and investigation costs incurred by or on the insured’s behalf over the life of the claim?

• Is the policy limit inclusive of defence costs or not? 

• How long may a claim take to settle? Sometimes this can be eight to ten years or longer, which means the legal costs and interest liability will mount, as will the effect of inflation.

• How many parties are likely to be implicated in any claim or action? The more parties there are, the more difficult and costlier it is to settle a claim.

• What is the nature, scale, and complexity of work done in the past and during the policy period? (Note: a policy covers exposure from past work where the retroactive date has been extended to do so).

• What is the overall contract/project value the insured works on? The insured may have a small part and only earn a small amount of fees, but their acts, errors or emissions could delay the entire contract/project.

• How many prior years are there where risk exposure may arise? In some cases it may take years before a liability becomes apparent to the Insured.

• What is the exposure from ‘incoming principals’ risks at prior corporate entities, or merged or acquired entities?

In general, a sum insured of less than $5 million is unlikely to be adequate for even a small practice which assesses its exposure as low.

A $1 million sum insured is no longer adequate for many Professional Indemnity or

Directors & Officers Liability policies – these days you generally need at least $5 million.

For more information, please visit our website: www.optimuminsurance.com.au