In the age of digital and social media, with virtually every aspect of our business and personal lives captured for posterity, the importance of professional indemnity (PI) insurance cannot be overstated. Yet, many consider this an optional expense, especially when tightening their budgets.
At its most basic, PI protects businesses against their legal liability towards third parties for loss or damage arising from their professional negligence or that of their employees. Consider that virtually everything is recorded on a device and saved to the cloud, the risk of not being covered in the event of a crisis and being found wanting (even if by accident) is significant.
“According to a recent report, PI insurance is expected to register a 2.9 percent compound annual growth rate over the next five years to reach in excess of $45 billion by 2023. This reflects its importance for organisations globally, as they seek to mitigate the risk of negligence claims and potential damages awarded in civil lawsuits,” says Jan Drahota, executive director: business and specialist insurances at Indwe Risk Services.
Not only is the financial cost significant, but the reputational damage a business can experience from such claims could potentially lead them to shut their doors.
Today, customers have access to a myriad of service providers and easily migrate to those who provide the best products for their needs and that meet their budgets. When a company experiences a negligence claim, many customers may be inclined to simply move their business to a more “reputable” organisation and may never return.
Negligence encompasses a range of areas that many might not even be aware of. This can include a breach of duty or care; infringing on someone’s copyrights, trademarks or broadcasting rights; loss of documents or data; and theft to name but a few.
A PI policy will cover the business if it makes a mistake in the professional services provided, should it lead to a dispute with a client. If the dispute becomes complicated, the insurer will defend the claim all the way through to the High Court, if necessary. Even if the company loses, the policy will still cover any damages it becomes liable for, subject to the level of cover the business is insured for.
“However, PI is not something that is a ‘sign once, forget forever’ policy. It must be reviewed continuously, especially the kind of cover provided and the value of protection the business gets. This is where working with a trusted service provider becomes essential,” says Drahota.
PI issues are complex and multi-dimensional. If the brokerage does not have the necessary experience in dealing with such issues, or simply tries to provide a generic service to a business, then it is best to look for an alternative provider.
“Every business is unique and has different requirements. Engaging and consulting with the client must be a fundamental step on the part of the brokerage. In this way, the insurer will best be able to advise on the type and level of cover required. PI is something that talks to any industry not just medical or mining.”
For example, if an architect delays a building project because of his error, then he could be held liable. The same holds true for advertising agencies who manage campaigns that could be misconstrued and cause reputational damage on the brands they work for. Similarly, beauty consultants who do Botox treatments will be held liable if something should happen to a patient.
“Because it is not legislated to have PI cover, there are companies that feel it is unnecessary. Yet, anybody who sells services needs PI insurance. The impact of not having it could cost you your business,” concludes Drahota.