Limit of indemnity in Professional
Liability policies
All of us have filed our IT returns and some of
us have engaged the services of a CA due to our various sources of income .One
fine day we receive a notice from the Income Tax department that we have not
paid our taxes correctly and default notice is served on us. This is an example
of a small occurrence. In large businesses Income Tax default has greater repercussions.
The CA who has filed on our behalf is liable
for such financial loss as it has resulted due to negligent acts, inaccurate
advice, errors or omissions.
Liability means owning responsibility either
implicitly or by Statute .Professional indemnity
insurance covers compensation payable for
the financial consequences of neglect, error or omission by the professional or
firm taking out the policy.
How to decide on limit of indemnity or the
liable costs.?
The Limit of Indemnity is the maximum amount the insurer will pay under a
policy during the policy period and it is a policyholder’s
responsibility to decide the amount which is adequate to fully
protect his/their business. Legal costs may be included within the Limit
of Indemnity or may be covered as an additional amount, depending on the policy
purchased.
How do you calculate limit of indemnity?
To determine if an
indemnity limit will be sufficient to cover a future claim, the following
points need to be reckoned
- Claims that may arise today or in the future in the discharge of professional services .To arrive at the
approximate indemnity limit previous
data/claims may be analyzed.
- Claims that may not be finalized during the current policy period or
may be accrued later.
- Deciding the right Limit of Indemnity is significant to avoid the
disastrous consequences of being under-insured.
How much is enough?
Listed below are points for general awareness
and risk management purposes which shall help as a guide to decide an
adequate level of cover .
- Risk Exposure of the business
- Inbuilt Controls
- Claimant legal costs
- Regulatory requirements
- Inflation
- Claims made cover
Risk Exposure: The Insured is in the best position to
assess the risks to which they are exposed. Analysis of risks must be done
considering factors such as catastrophes ,frequent occurrences previous data on
such claims etc.
The size of a firm also matters when
assessing the compensation as the larger the firm greater is the compensation;
as is dealt by the Courts. If it is under-insured at this juncture, the damages
to the business are huge. The claim will eat away the profits of the Insured if
not properly/adequately insured.
Inbuilt Controls: Provisioning, Welfare Fund etc. act as a
stabilizer in such situations
Claimant's legal costs: Legal costs can increase the amount of the Professional
Indemnity claim. So sufficient cover must be available to cover the Legal costs
in addition to the damages claimed.
Regulatory Requirements: As mandated by the regulator which is
specific to each business.
Inflation: Claim settlement in Professional indemnity
policies is a long drawn process and can take years to reach settlement. Limit
of Indemnity should cover the inflation factor.
Claims made cover: Limit of Indemnity chosen in the policy will be available for claims that are brought
against the policyholder during the term of your policy. Further renewal with higher limits will not be available for the
present claim as the Sum Insured reckoned will be the claims made policy.
Liability policies to cover Professional
liability of a Firm ,Individual are important for the smooth functioning of the
Professionals. Adequate cover will enhance the decisive skills as the risk
aspect is taken care of by Insurance.
We at Zen Insurance assist in choosing the right Limit of Indemnity. Plan your
Insurance Program wisely and contact us for assistance.
Disclaimer:
Zen Insurance is
an IRDAI registered broker which facilitates quick &
accurate insurance broking services. We deal with only regulator approved
products of insurers. We do not underwrite the products
Comments
Post a Comment