Everyone makes mistakes, or so the old axiom goes. While this is usually reserved for small mistakes that can often be solved with an apology, it is unlikely to have the same resonance on a larger scale.
Errors of judgement are common mistakes, though by their nature are no less damaging. Take professional indemnity, for instance: In business, big decisions are made on a day-to-day basis, and often by only one person. This makes the risk of mistakes and the threats of legal action a pressing concern for many business leaders.
That is why professional indemnity insurance exists: to protect managers and those susceptible to making mistakes, omissions or negligent acts.
The risk to decision makers
Virtually any professional whose career involves giving expert advice or services to another person is open to legal claims from a failure or mistake.
While technology is making some business choices easier, there are still many everyday tasks a professional must undertake that leave them susceptible to expensive lawsuits. Despite this, decision makers aren’t using all the tools at their disposal when providing their expertise.
According to research this year by PricewaterhouseCoopers (PWC), only 1 in 3 executives consider their choices to be highly data driven. What’s more, a further one-third of these respondents estimate these big decisions to be worth in excess of US$1 billion.
“A company’s success today is tied to how good it is at making big decisions,” PwC’s Global & US Data and Analytics Leader Dan DiFilippo explained, adding that many executives “continue to rely on experience, advice or their own gut instinct”.
Under the Trade Practices Act (1974), professionals can face personal action from their work-life decisions, leaving their finances open to the costs of legal investigation, defence and any settlements that need to be made.
Attracting key talent
Individuals who are open to errors of judgement from their high-pressure jobs may feel hard done by from a lack of protection over personal lawsuits from professional decisions – especially when these involve the risk of losing their own assets.
Many businesses, then, are now taking the opportunity to include professional indemnity in their business insurance policies, allowing them to remove some of the weight from their employees’ shoulders.
This also allows them to attract new talent, with jobseekers finding the protection offered by policies such as directors’ and officers’ insurance an attractive incentive when deciding between two employers.
Protecting from mistakes
Back in September 2013, Australian Professional Indemnity Group (APIG) said more than one-third of professional indemnity specialists predict there to be the highest ever level of claims activity over the following 24 months.
Earlier this year, the National Claims and Policies Database showed that professional indemnity insurance has risen by 12 per cent over the past year. More than 600,000 professional indemnity risks were written in 2013, rising by a staggering 300 per cent over the course of a decade.
At the same time, this has created competition among insurance providers, allowing the average premium paid for the cover to fall by 16 per cent, Insurance & Risk Professional announced.
The publication said it was through the education of insurance brokers that professional indemnity insurance has improved, with Solution Underwriting Managing Director Rhys Mills adding the importance of contractual requirements.
“We’re seeing the growth in the professional indemnity market being largely driven by legislation changes and contractual requirements,” Mr Mills explained.
“The latter are being driven by the majority of contracts these days including a requirement for professional indemnity to be held by suppliers, even when there isn’t an insurable PI risk.”
While we are just past the halfway point of the prediction published by APIG, the number of businesses purchasing such cover is likely to continue to grow. This will have the double effect of improving the protection offered to decision makers and removing the stress and the burden placed on a business’s key operators.
Assuming these professional estimations will prove to be correct, it might be in the next nine months when we begin to see the difference between underinsured and well-prepared organisations.