Professional Indemnity

Is it a case of the tailor being the worst dressed?

December already, another year nearly over.  Its at this point in the year when many of us hope to finalise our plans for the year to come. Planning for the year ahead usually involves budget and development of strategic objectives , and somewhere within this process should be a review of our own risk management function. We are in the business of selling Insurance, yet how much time and resource do we allocate to our own protection? While we would all like to think a claim for breach of our professional duty is remote, the risk, however remote, still remains.

It is essential therefore that Brokers fully assess and address their own business risk. Professional Indemnity cover is one of the primary forms of protection that Brokers rely upon to protect their business. As Brokers we are well aware that Professional Indemnity is a regulatory obligation however it is far more than this. It can be the rock on which a business fails if the policy does not respond or supply the safe harbour that provides protection in stormy waters. Cover must be continuous from the date of registration and at a minimum the policy must have a limit of indemnity of €1.25 million per claim and €1.85 million in aggregate per type of regulated activity. However, to what extent have you considered the adequacy of these minimum limits of indemnity? Each Broker should carry out their own risk assessment and carefully consider the level of cover they require and the process involved in managing a claim should an action be brought against the business. In addition to considering the adequacy of your limit of indemnity, which should include a review of your clients and their associated risk profiles, a thorough review of your professional indemnity policy cover and wording should also be undertaken.

Not all policies are written on the same basis, and as we all know the devil is in the detail. Great care should be taken in understanding the terms, conditions, exclusions, and subjectivities contained within any Professional Indemnity Policy. This review should identify any gaps in cover. Should a claim or circumstance arise, the cost to your business is more than just your insurance premium; costs can be significant and can include:

  • Financial Management of the Business. Consideration should be made as to the possible implications of making adequate reserves prior to the conclusion of any action against the company, particularly if the claim is greater than the company’s professional indemnity policy limit of indemnity and balance sheet.
  • Reputational Damage – this can occur whether or not you or your company are at fault and can result in loss of income, increased operating costs, or regulatory costs.
  • Cost of Claim(s) Declined by Brokers Insurers – should Insurers decline a claim, you may find your self in a situation where you must meet the cost of the claim.
  • Legal Costs – again, in a situation where a claim is declined, you may have to seek your own legal advice and bear the cost of same.
  • Time & Resource – whenever any claim or circumstance arises, significant staff involvement is required, and quite often this may involve the client handler, a manager and perhaps a Director.
  • Excess – when a claim is successful, and the Insurers have paid out the claim, you are responsible for payment of the excess to the Insurers.
  • Claims Below Excess – in these cases, should a claim against you succeed, you are responsible for payment of the claim.

Unfortunately, errors and omissions can occur in even the most diligently managed organisations, however, there are a number of processes that can reduce the risk of claims or circumstances:

Business Process Business processes and controls should be reviewed on an ongoing basis. In reviewing and setting out business process and controls you as a Broker, ensure these comply with legislative and regulatory requirements, such as the Consumer Protection Code, Minimum Competency Code, Data Protection etc. This not only provides protection to the consumer but, by ensuring best business practices, you are protecting your business. Internal Audit Control Internal audit of these business process and controls allows you to assess the progress and performance of employees, operations and programs. Internal audit should improve operations as it evaluates the effectiveness of the business processes and controls and assists in identifying risks. Once these risks are identified, business processes and controls can be updated with a view to mitigating these risks.

Review and Communication Knowledge is power. It is important that knowledge is shared throughout an organisation so as all parties are aware of their legal and regulatory obligations and the reasons as to why business processes and controls and internal audit are so valuable to their organisation. It is also important that all staff are aware of any claim or circumstance which may have arisen as this provides an understanding and awareness of how this claim or circumstance came to be, therefore the same issue can be avoided in future. Communication is a two way street, staff need to be aware that any concern or query they may have, can and should be communicated as appropriate. Staff should be made aware of the importance of Professional Indemnity cover and the obligation the firm has in relation to notification requirements within the policy. In order to comply with notification requirements, each firm should have procedures in place ensuring that as soon as they become aware of a claim, or a circumstance that may give rise to a claim, notification should be made immediately, irrespective of:

  • Whether or not they believe the claim is without merit or may be spurious
  • The amount involved
  • Their views on liability.
    To finish, while initially, it may not be clear if the issue at hand is a complaint, a circumstance or a claim, a good rule of thumb is ‘if in doubt, check it out’.

Denise Behan, Robertson Low Insurances Ltd

“Not all policies are written on the same basis, and as we all know the devil is in the detail.  Great care should be taken in understanding the terms, conditions, exclusions, and subjectivities contained within any Professional Indemnity Policy.  This review should identify any gaps in cover”