As the professional indemnity insurance market continues to grow in complexity, it has never been more important to check that your practice is adequately protected.
The professional indemnity (PI) insurance market is changing rapidly. According to the latest data from the Australian Prudential Regulatory Authority (APRA), gross written premium (GWP) for PI cover increased by 23.2 per cent in the past 12 months, largely driven by the rising number – and cost – of claims.
In this challenging post-JobKeeper environment, PI insurance may be more valuable than ever to public practitioners, says Anton Vucak, partner at Hall & Wilcox.
“People are more conscious of their finances, so if something goes wrong, they’re exploring what the consequences are and who they’re able to recover their losses from,” he says.
“If you do get a claim made against you and you don’t have the appropriate cover, it’s a very costly and complicated process.”
Understand the parameters of your cover
To determine whether your PI policy provides sufficient cover for your practice, Vucak recommends assessing your risk profile on an annual basis, in collaboration with your broker or insurer.
“I think the most important factor is the extent of the coverage,” he says, explaining that he has encountered situations where policies have had a A$5 million limit, but claims have been filed for A$10 million, leaving policyholders liable for the difference.
Understanding policy exclusions and restrictions is also critical, as is staying within the parameters of your expertise. It can be all too easy for sole practitioners, in particular, to engage in activities not covered by their policy.
Vucak says in such instances, people should be comfortable explaining their professional limitations to clients and referring them to a third party.
He adds: “If you’re extending your scope of work as your business improves or increases, make sure you consider that your insurance also needs to increase.”
Swift action is required
If a claim is made against your practice, the first step is to make contact as soon as possible with your broker or insurer. Vucak explains that if your policy is written on a “claims made and notified” basis, any delays may culminate in the policy period lapsing before you lodge the claim.
“If something does go wrong, there’s no point hiding under the covers,” he says. Likewise, he advises against defending yourself when first alerted to the claim, when emotions are often heightened.
“Notifying your insurer and broker will allow you that opportunity to talk through it and make sure the right process is followed.”
Establishing diligent record-keeping systems within your business is beneficial as a pre-emptive measure, so if a claim does arise, you can share as much information as possible with your insurer.
“Professionals in the accounting world especially need to have an adequate paper trail,” Vucak says.
“Making sure they can substantiate what they did, how they calculated taxes, what factors they took into consideration, so all the things that may be raised later on can be produced if required.”
For Vucak, having a good relationship with an insurer or broker can reduce stress in several ways. The right policy will lessen the financial strain of defending a claim while providing access to expert guidance on what is often an unfamiliar process – leaving you free to continue regular business activities.
“If you’re fixated on that claim, then potentially you’re not paying attention to the other clients you have, which may cause other claims,” he says.
“The value of having somebody there to help you through the process cannot be overstated.”