Professional indemnity insurance: a critical protection

Professional indemnity insurance provides cover against litigation as a result of professional advice.

For that reason it is an essential part of a comprehensive business insurance policy for many occupations in which professional advice is given to clients - real estate agents, accountants and, naturally, insurance advisers among them.

Yet according to Elders Insurance agent David Powell, it can be hard to get that message across to businesses.

"I find that a lot of people that do require it don't actually take it up," says the Metro Melbourne agent.

A common reaction is for professionals to insist that they never do anything wrong - yet that is missing the point, says Mr Powell.

"You may have done the right thing, but if the customer perceives you haven't, there is nothing stopping them from going to a solicitor and seeking retribution for a perceived wrong."

That's because of the highly subjective nature of professional advice. While you can control your own actions and may be operating within strict guidelines, checks and balances, what you have no control over is the subjective opinion of your clients.

And what's more, it is immaterial whether you have done anything wrong or not, as if a customer takes legal action you will need to have the resources to respond.

"It costs money even to defend those perceived wrongs if it goes to court or you have to use legal arguments to defend your position," explains Mr Powell.

Despite the strong case for all businesses that provide professional advice to protect themselves with professional indemnity insurance, many only get it when a customer requires them to as a condition of advising them.

Rather, explains the Elders Insurance Metro Melbourne agent, it should be part of the core risk management strategy for their business.

"The outcome if you don't have it could be catastrophic - claims can be very high."