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The sweat, toil and money a company’s owners and employees expend in building a business and maintaining the same is quite profound. Thus, it is imperative for these stakeholders to be familiar with Business Insurance, which cushions a business, and its assets and against liability and unforeseen events.
Why Insure A Business?
The cost of insurance is minimal compared to the risk of financial exposure.
Take for example, a company were to host some clients in the office which caught an accidental fire causing large damage. Then the insurance cover, if applied for beforehand, may include the cost to repair the damage, public liability, as well as coverage for the financial loss the company incurs from not being able to operate due to an insured event.
Legal costs to defend yourself against any claim can be significant, and they can mean interruptions to your cash flow and disruption in your business. The cost of keeping a business afloat in case of contingencies is quite high to be paid entirely out of your own pocket but insurance can step in and largely help.
Every industry and every individual business face different kinds of risk, both in terms of the likelihood of something occurring and the gravity of the consequences. Some of the common risks that businesses today may be exposed to include data breaches (cybercrimes), property damage, human capital costs, professional services mistakes or international manufacturing and export/transit issues.
Generally, Business Insurance schemes offer several types of coverages, that can be chosen basis the nature of a business and the size of potential risks associated with the same. These cover types inlcude Public Liability such as property damage or third-party injury, theft on premises, contents, replacement of glass, credit insurance, business interruptions, portable equipment, money and building.
Professional Indemnity Insurance
In the financial services industry, different kinds of insurances are offered with one of them being - Professional Indemnity Insurance - a form of business insurance designed for organizations that provide consultation or any professional services to its clients or individuals working as contractor, freelancer, consultant, IT Professionals, self-employed professional, management or recruitment consultants, designers, teachers or tutors.
It is noteworthy that Professional Indemnity Insurance only provides cover for claims lodged against a company/ individual by clients who suffered financial loss due to the service or advice received, such as:
- Investigation and settlement costs.
- Fee of a public relations consultant to minimise damage to the reputation of the business.
- Claims for errors that happened prior to the insurance start date (retroactive cover).
- Claims related to performance of professional services by a business consultant, contractors, subcontractors or agents working for the alleged business.
- Public and products cover.
Thus, legal costs, settlements and court orders or judgments associated with claims are all covered under this. However, Professional Indemnity does not cater to physical premises or contents if they’re damaged by an insured event. More so, it may not even cover for legal liability in case of a personal injury or property damage to a third party caused by some business operations.
Interesting Claim Stories
Even Photographers may require business protection! LSE-listed and Bermuda-based Hiscox Ltd, specialising in niche areas of the insurance market, reported one unique incident wherein one of the customers, a wild-life photographer, got mugged off his photography equipment by a group of baboons, causing his to file a claim on his commercial insurance policy. The customer was on a deforestation shoot in the rural Kenya when he fell victim to the unexpected theft at the hands of the local wildlife. Now, that’s unusual! Nevertheless, as he had registered for a specialist photography insurance policy with Hiscox, the customer got reimbursed for the claim.
In another event, a client hired and instructed a graphic designer to develop price tags that would fit around the stem of Christmas Trees even when they grow bigger. However, as the trees grew taller and thicker, the tags could not sustain the change and ultimately causing some loss to the client. Consequently, the client executed legal action against the designer for professional negligence. The legal costs and the compensation payments to clients were all taken care of by the graphic designer's professional indemnity insurance policy with some relaxation at the client’s end as well.
Aon, a leading provider of insurance to consultants in Australia, quoted another incident where 1000 mm high balustrades for two external stairs, designed by an architect, were non-compliant with council building regulations around installations. As a result, the architect’s client lodged a request for the architect to compensate for the rectification of the balustrades so that compliance requirements were fulfilled. The architect could sail through this challenge as he already had a Professional Indemnity Insurance registered with Aon, which paid for the rebuilding work.
The Bottom Line
Speaking of Australia, for some professions and industries, Professional Indemnity Insurance is a mandatory requirement now. Even if a business is not obliged to have insurance or does not opt for it, the client may demand it for feeling assured that the service provider is strong enough to bear the repercussions in a worst-case scenario. Besides, the service provider could be liable for a small amount to even thousands of dollars’ worth of legal penalty, including lost income and time spent on defending any allegation.
