Professional Indemnity FAQ

Managing your Professional Risks

It is so important to know your own business thoroughly. You have a duty to know the laws that affect it and take risk management for your business seriously. This includes keeping good records and having a strong Accounting and Administration system.

Do not allow yourself to be in a position where you say "with the benefit of hindsight, we would have done this instead" when really you should have taken the time to understand your risk exposures and taken steps to minimise the chance of loss or transfer them away.

Managing your professional risks are important! Risk management is a broad and complex discipline but on the other hand, claims against you can have a personal, financial and reputational impact on your business and your staff that is often not appreciated until a claim occurs.

If you are personally named in a claim and have to defend it, or litigation results in an adverse court judgment and the resulting negative publicity, it could damage your business permanently even though insurance may indemnify the financial loss suffered by the third party claimant.

On top of that, as a Broker it is so hard to find competitive premiums from insurers because such claims increase the cost of insurance for your company. In fact most alternate insurers will decline to quote with any adverse loss history. The worst situation is if your current insurer declines to offer renewal due to a loss history. It is very difficult to negotiate out of this if there is no evidence of a decent Risk Management procedure, in particular when the Insurance market hardens.

We suggest the following Eight Steps to managing your professional risks.

Step 1 -File notes

Employees and managers across the organisation must be instructed to take detailed file notes of all important conversations, telephone calls and meetings. These chronological and continuous records are most important in managing claims, disputes and litigation. Back up these discussions by confirming them in letters or email to further emphasise the importance or content of those discussions or meetings.


Step 2 - Keep the original file notes safe

The original files notes should be kept in a secure and easily accessible location. If using an electronic form, make sure they are backed up or kept in the clouds along with them being date stamped in a system that can be shown is not easily manipulated.
 

Step 3 - Document management

Strict protocols should be implemented across the organisation to ensure that documentation is properly secured, maintained and managed. This includes client contracts, supplier contracts and terms of business. In some industries that can be regularly audited, they must be made readily available but when not needed, secure to prevent theft or manipulation.


Step 4 - Take account of any Growth and expansion

If you are expanding your business, ensure that a properly thought out risk management programme is implemented across that growth. This means all Directors and Staff adhere to uniform policies that may mean delegating certain reporting lines and additional procedures.


Step 5 - Develop a Credit policy

Avoid risky customers and transactions by developing a credit risk approval system and credit policy. More and more these days, customers are seeking to get out of paying their bills by making cross claims alleging breach of duty on the part of professionals.


Step 6 - Implement a risk management programme

Senior managers, directors and officers should ensure that their company takes risk management seriously and should implement a risk management policy across the organisation.

Individual managers should adopt a challenging mindset and ask questions about risk. Don't make assumptions. If you are a small to medium size enterprise, get external advice from relevant experts such as Solicitors, Accountants and Insurance Brokers. Have your Insurance Broker get the right insurance coverage in terms of both quantum and business activities.

For companies implementing a risk management policy for the first time, Australian/New Zealand Standard 4360:2004 Risk Management published by Standards Australia and Standards NZ 'provides a generic framework for establishing the context, identifying, analysing, evaluating, treating, monitoring and communicating risk.'

 

Step 7 - Work with your insurer and get advice early

Your insurer is in the business of insuring risks and providing peace of mind. It goes without saying that your insurer will love you if you are a good risk or if you do everything possible to manage your risk.
If something goes wrong, or looks like it might go wrong, notify your insurer and/or insurance broker immediately and get early advice, abide by the terms and conditions of the policy particularly relating to defending the matter and denying liability.


Step 8 - Be aware, up to date and as informed as much as you can

While we are all time poor, as a Director or Manager of a business you should make sure you are totally aware of how your company operates and its key business activities. You need to keep up to date with all the various laws and regulations which impact on your profession such as the Australian Consumer or Competition Laws (Trade Practices Act) as well as the laws specific to your profession, such as like Occupational Health & Safety Laws if you are a Project Manager or Human Resources consultant, environmental laws if you are an Environmental Consultant, Tax and Corporations law if you are an Accountant or Business Adviser and the Insurance Contracts Act and Financial Services Reform Act if you are an Insurance Broker.


A few simple risk management techniques such as these can make all the difference in preventing or defending claims. 

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