Professional Indemnity Insurance provides financial protection against negligence, breach of duty etc. if being a professional you are not prepared for events like error or omission, breach of duty etc, it can prove to be the recipe for ultimate failure. It is very important to buy professional indemnity insurance with an optimum level of coverage.
Before opting for a professional indemnity insurance it is necessary to navigate through a wide range of factors which influence the magnitude of PI coverage or sum insured. To avail an optimum cover, it is crucial to look at the following factors critically:
1. Size of the contract
The time period of contract, expenses and probable risk exposures are the critical factors which have to be taken into consideration while deciding the amount of sum insured. With your sound judgement and expertise, you should study these factors under the lens of possible financial losses.
Example: If an architect has signed a contract for designing a smart city and by the virtue of a contract, he has to buy Professional Indemnity insurance. Then required sum insured in such case should be a large amount as the size of the contract is big, the time period required would be long and risk exposures are quite high.
2. Statutory Registration
In various professions, it is a precondition to obtaining a specific level of professional indemnity insurance in order to perform professional services. The associated governing body has formulated strict guidelines specifying a level of professional indemnity cover that is required to trade. As clients are becoming more conscious about the litigation, a minor professional negligence may result in huge financial losses. Know about the minimum level of cover required in your professional services and safeguard your business services from any kind of legal hassle.
3. Turnover or Profits
Profitability of the company defines the paying capability or affordability of a professional firm. To measure the coverage required for your professional services, study your books of account and ascertain the financial loss magnitude and map the probable financial risk.
By transferring the risk to an insurer, it becomes possible to enjoy peace of mind. A financially sound professional services firm can invest funds that would otherwise have been set aside as a reserve and plan one’s business more effectively.
4. Size of the firm
Size of the firm affects the sum insured amount as firms on large scale with highly reputed clients have to avail large sum insured amount whereas professionals operating on the small scale does not require large sum insured amount. A professional firm considers the risk profile of their business operations in order to find the apt sum insured.
5. Type of Profession
Sum Insured of errors and omissions insurance is also driven by your area of practice, the number of the practitioner, risk group of the practitioner, experience and qualification. This policy facilitates a safety net so that you can focus on your core business peacefully.
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It is crucial to assess the likelihood of potential claims and the quantum of probable future damages in terms of various factors such as the number of clients, size of clients etc. It will help in determining the risk profile of your clients and help you define an amount of sum insured to cover up all the probable risk exposures.
An IT firm has purchased Professional indemnity policy. The sum insured of Professional indemnity insurance is Rs. 20 Lacs. During the policy term period a claim of Rs.30 lacs has been filed against the firm. Although the policy will cover the loss up to the sum insured amount i.e. Rs 20 lacs but the remaining amount of claim will be a liability for the firm. In this case, the firm has failed to determine the amount of sum insured accurately. Most of the firms decide the amount of sum insured out of cloud without any risk assessment so these mistakes can bring unpleasant outcomes at the time of claim so setting the limit of indemnity is an important mechanism while availing PI policy.
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Sum insured limit is an essential measure of coverage in Professional indemnity insurance. Being an adviser, consultant and expert, it is important for you to avail Professional indemnity insurance to get rid of defence cost, financial loss and reputational damage arising due to potential negligence exposures. While availing of this policy, it is important to put emphasis on the limit of indemnity and coverage. SecureNow can help you get effective loss mitigation. SecureNow as an insurance expert will understand your risk profile better. We provide knowledgeable assistance to choose an optimum level of sum insured and coverage with cost efficiency.