Is professional indemnity insurance compulsory or a legal requirement?

For many businesses, professional indemnity is not a legal requirement. In fact, in Australia quite often the only insurance that is required at law is workers compensation insurance. That’s only for those companies with employees.

However, for some industries professional bodies or regulators make professional indemnity mandatory. For example, if you’re a member of a professional accounting body such as the CPA, it’s compulsory. Members must have a minimum level of $2 million professional indemnity insurance cover to be registered with the CPA. Another example is in Queensland, where legislation requires compulsory pool inspections. These inspections must be done by a registered certifier for properties being sold or leased with a pool. Before a pool inspector can be registered, it is mandatory that they have professional indemnity insurance.

Three checks to see if Professional Indemnity is compulsory for you

When trying to determine if professional indemnity is mandatory or optional for your business, we suggest the following:

1.   Check the government guidelines via the Professional Standards Councils to see if you are covered under the professional standards schemes. Professional Standards Schemes are legal instruments that bind associates and are approved by the Professional Standards Councils. So, members need to obtain insurance as required by the associations. Some of these schemes cap the civil liability or damages. Meaning, professionals who take part in an association’s scheme have capped compensation if a court upholds a claim against them.

2.   Importantly, check your client or supplier contracts closely before signing. In fact, you may find that you are contractually obligated to have professional indemnity insurance. Furthermore, before client’s engage you they may require a Professional Indemnity Certificate of Currency. This requirement may be included in the Insurance and Indemnity clauses of the contract. Meaning, you must supply a Certificate of Currency before starting. What does this mean? Quite simply, a Certificate of Currency is a document confirming that your insurance policy is in force and paid. Also, it includes details such as the insured company, period of insurance, sums insured or limit of liability. Your client will want to know that they are both protected if something goes wrong. Therefore, if your client decides to sue you to recover losses, they want peace of mind. Ultimately, having an insurance company behind you to cover costs might be the difference between winning and losing your next contract.

3.   Most of all, watch FD Beck’s previous video on ‘Who needs professional indemnity insurance?’ Even if you’re not part of an association governed by the professional standards scheme, you may still need PI insurance. Furthermore, just because you are not contractually required to have PI insurance, it doesn’t mean that you shouldn’t have it.

Whilst PI may not be compulsory, you may still need it!

In summary, if you provide any service that is relied upon by other people or businesses, you may need PI insurance to protect you. In fact, not having PI Insurance often represent a serious business risk.

To get your Professional Indemnity quote instantly online go to FD Beck’s online quick quote. Answer a few simple questions to generate your online quote. Almost 150 professional occupations are covered.

For over 100 years, FD Beck has protected Australians. Rest assured, we have the knowledge and expertise to handle every aspect of your insurance needs.

Photo by Cindy Tang on Unsplash