What exactly is professional indemnity insurance, and why is it necessary?
When working in the mining consulting industry, it is critical for experts to have the proper insurance and risk management methods in place.
For resource professionals, especially consultants, professional indemnity insurance is a critical risk transfer tool. Engineers, geologists, metallurgists, and mine managers, for example, may be exposed to a high level of risk owing to the services they offer and the type and scope of the projects they work on. Claims may be quite prevalent in today’s litigious environment. Consultants who do not have a PI coverage put their company assets – and maybe their personal assets – at danger in the case of a claim. Even if the consultant is eventually found not to be at fault, the reimbursement of legal fees connected with fighting a claim of negligence or equivalent is frequently the component of the insurance coverage that an insured firm values the most.
A professional indemnity coverage covers not only third-party compensation and defence expenses, but also disciplinary investigations and civil fines and penalties. Investigations into occupational health and safety (OH&S) and civil penalties, for example, are significant dangers that many resource professionals face. Contractual responsibility and violations of consumer protection regulations may also be covered by PI insurance.
Why are premiums going up?
The insurance market is cyclical, and it has hardened significantly in the recent 12-24 months, notably for PI insurance across all mining, natural resources, and engineering professions. A soft market is defined by a large number of insurers, cheap premiums and excess levels, wide policy coverage, and access to greater indemnity amounts. Insurers’ rates during the slow market eventually became unsustainable, and they started to incur underwriting losses. Loss ratios (claims payments as a % of total premium) reached unacceptably high levels for insurers, and international PI was named the second-least lucrative line by Lloyd’s in 2018.
A number of Lloyd’s syndicates pulled out of the Australian PI market in 2019, resulting in decreased capacity, notably for mining, engineering, and construction risks, which were major contributors to underwriting losses. The surviving insurers subsequently increased rates and excesses, limited coverage, added additional exclusions, and lowered the indemnity amounts they were willing to offer.
As a consequence, the present tough market has seen yearly rates for resource professionals rise by at least 20-30%, and by as much as 100% or more for individuals judged greater risk by insurers. Higher indemnity levels are often unavailable due to reduced insurer capacity.
How can you get the most out of your PI renewal?
Regardless of the above, the cycle will flip when insurers begin to benefit from increasing rates. Capital will come back into the market, resulting in increased competition among insurers and a softening of the market. However, the challenging market is expected to last at least another 12-18 months, therefore it is critical for consultants to ensure that they are appropriately planning for their renewal and following industry best practise throughout this period. The following are some practical tips that may be useful:
- Give the process of rejuvenation the time and attention it needs.
- Engage a broker that specialises in your sector and has the resources to give you with the finest guidance.
- Complete the proposal form as soon as possible. Provide an explanation if the questions do not appropriately depict your company activity. A poor proposal might harm your business, resulting in premium loadings, limited conditions, or even refusal.
- Pay special attention to the questions on risk management. You’ll have a better chance of getting a favourable outcome if you can set yourself apart from your competitors and reassure underwriters about your processes and procedures. If applicable, provide accreditations, CVs, and process manuals.
- If any PI claims have been filed against your practise, describe the efforts taken to ensure that the conditions that led to the claims do not occur again.
- Underwriters are more selective about the risks they are willing to cover in a bad market, and talks are sometimes protracted and time-consuming. Make sure your broker has your renewal documentation well in advance of your renewal date, since they may need to contact many insurers to get the needed coverage and premium.
Read more related articles on here postdune.com
