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Why we all need Professional Indemnity Insurance

publication date: Feb 21, 2009
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author/source: Pamela Pratt
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In the course of my work, I read a lot of material on Professional Indemnity Insurance. Some of this is straightforward although some makes me question how someone outside the insurance market can make informed choices at all.

As a professional risks broker, I want to help you make informed choices when thinking about your exposure and how important professional indemnity is to the health and safety of your business.

For some, the thought that their business is permanently exposed to financial loss through a simple error or omission is sufficient for them to purchase professional indemnity insurance. However, as the world moves ever quicker into the blame culture, fuelled by escalating court awards and ‘No win no fee’ arrangements, businesses are ever more exposed. Any person who gives advice, negotiates, contracts or offers similar services is seen by clients as an expert. Clients will not hesitate to pursue a claim if they feel they have received substandard service. Professional indemnity provides essential financial protection to you in your professional capacity as a result of an alleged neglect, error or omission but importantly it also will meet the cost of defending claims.

Professional indemnity insurance is one of the few classes of insurance written on a ‘claims made’ basis. Most other classes of insurance are written on a ‘losses occurrence’ basis. This means that you must have a policy in force at the date on which a claim or circumstance likely to give rise to a claim is first notified to you.

These are some examples of how errors happen and situations that might give rise to a claim:

• Failure to follow up on a credit referencing and agent recommendation – i.e. not telling the client that the tenant will need a guarantor. Not checking that the guarantor is in fact suitable.
• Not obtaining a previous landlord’s reference on a tenant who was financially stable but had wrecked his previous properties.
• Failing to report the fact that the tenant was late in paying their rent and depriving the landlord of the opportunity to get solicitors involved.
• Failing to inspect on a regular basis and spot that tenants had removed/damaged furniture, kept animals, wrecked the interior.
• Spending money on repairs the not authorised by the landlord.
• Claims for misrepresentation.

Therefore it is worth focusing on your business when thinking about your professional indemnity insurance.

An underwriter will look at risks based on who you are, how long have you been doing what you do and how qualified you are to do it. They will also need to know exactly what you do and who you are doing it for, to assess the likelihood of a claim. Claims happen!! It is how we deal with the claim and what steps are in place to ensure that a reoccurrence is minimal is the important factor.

When looking to buy or renew professional indemnity insurance it is important to start early to ensure that you get the best choices. The current insurance market is a highly competitive place with rates at an all time low and everyone chasing down premiums. Now is a good time to have a broker take a thorough look at your risk, conduct a full review of your cover, and potentially negotiate the premium that you pay.

In this turbulent time more people will be turning to the letting market. The property professional insurance market has already seen a rise in claims. The need for Professional Indemnity Insurance has never been greater.

There is also one final factor that should always be considered. Just as you would with every other company you deal with, make sure your broker understands your business, your work, your clients, and most importantly is someone you trust with your company’s protection.

Pamela Pratt is a senior account executive in the specialist PI Team of Kerry London Ltd. Direct Dial: 0207 655 8148 Email: pamelapratt@kerrylondon.co.uk