Professional Indemnity FAQ

How to measure your Professional Indemnity risk

How is the size of the Professional Indemnity risk measured?

There is no perfect system for measuring the size of the risk, but once the rate for a particular occupation is established, along with other factors such as claims history and location then the next consideration is turnover. But the turnover considered for PI purposes are gross fees earnt. Professional Indemnity insurance pricing is mainly focused on fee revenue, since the risks to professionals typically arise out of the service that they are delivering (as opposed to the sale of products or the existence of property).

The theory being that one company earning $1,000,000 in fees would have twice the exposure of a company earning only $500,000. The theory also is that the latter would have half the number of staff to generate that income hence half the risk. At the moment with the gross fees, we have the most reasonable feel for the size of an exposure.

Latest News

Illegal or unsuitable cladding now a big issue

Why we have laws, regulations and Australian standards? Because some people just do the wrong thing all for the sake of making money. The cladding issue is the subject of 4 Corners program on the ABC.

We are already seeing Insurance policies now placing exclusion endorsements into their policies excluding and claims relating to illegal cladding. We are seeing Governments demanding Audits of all existing buildings above a certain height. There are accusations of Builders taking other short cuts such as on Wiring, Pipes and sprinkler systems. 

The question is, who is to blame? Who will take responsibility?

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Small business in NSW

Right after the NSW Government have reimposed Fire Service Levies, they have at least made an effort for small business. The government has announced it will abolish stamp duty on a number of policies taken out by a small business. This is an important change.

What is a small business? In order to gain the exemptions, the business must be a small business for Capital Gains Tax Purposes for the income year in which the insurance is effected or renewed. A small business for CGT purposes is: “an individual, partnership, company or trust that is carrying on a business, and has an aggregated turnover of less than $2 million.”

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