Professional Indemnity to Insolvency Professionals

 

Professional indemnity insurance is a standardized insurance protection available to most professionals like, doctors, lawyers, chartered accountants, etc.

This policy offers protection to the insured persons against claims made by third parties on financial losses suffered by them due to any error or negligence of the insured person or their authorized representatives.

With the rapid growth of services sector there are now various specialized professionals operating in the formal economy, viz., management professionals, corporate secretaries, etc., The list if fast growing. There are quite a few professionals like insolvency professionals, registered valuers, etc. who have evolved in response to changes in the regulatory landscape, viz., Companies Act 2013, Insolvency & Bankruptcy Code (IBC) 2016, etc. The roles and responsibilities of these professionals are majorly dictated by the relevant regulations, professional guidelines and standards.

These aspects will impact the date of commencement of risk, type of coverage (project specific or annual), jurisdiction, etc. 

Most of these regulations are of recent origins and are getting tested on the ground by judicial pronouncements. This evolving jurisprudence has a significant impact on the expected role and responsibilities of these professional.

A recent case in point is the Supreme Court verdict on the maintainability of certain legal proceedings initiated by banks against personal guarantors of defaulting borrowers. Henceforth insolvency professionals shall be expected to apply this ruling in their discharge of their professional services.

Such repaid changes in the regulations and lack of past data posts a challenge to underwriters in pricing protection for such niche services. While a few insurers decide to give it a go-by the more adventurous ones need to bear the benefit or risk of improper pricing. However, unless the numbers expand to cover a significant proportion of the total professionals, the correct pricing of risk shall never be optimal.