Professional indemnity insurance: who needs it and why

What professional indemnity insurance is and who needs it

Professional indemnity (PI) insurance covers a business or individual against claims that their professional advice or service caused a client financial loss. It pays compensation the insured is legally liable for and the cost of defending the claim.

Anyone who gives advice, designs or specialist services for a fee may need it. For some occupations it is compulsory. Examples confirmed with regulators:

  • Financial services: Australian financial services licensees that serve retail clients must have compensation arrangements. ASIC's Regulatory Guide 126 says the main way to comply is to hold PI insurance.
  • Health practitioners: Ahpra requires registered practitioners to have PI arrangements that meet their National Board's registration standard for all aspects of their practice.
  • Tax and BAS agents: the Tax Practitioners Board requires registered agents to maintain PI cover that meets its requirements.

Many other professions have requirements set by a state regulator or professional body. Clients and government contracts also commonly require it.

What is usually covered, and common exclusions

PI policies usually respond to claims arising from an act, error or omission in the professional services named in the policy. Many also cover breach of confidentiality, defamation, loss of documents and the cost of responding to a disciplinary inquiry.

Most PI policies are written on a claims-made basis. The policy that responds is the one in force when the claim is first made and notified, not the one in force when the work was done. Three things follow:

  • Cover must be kept continuous.
  • The retroactive date matters, because work done before it is not covered.
  • A business that closes or is sold may need run-off cover for claims that arrive later.

Common exclusions:

  • claims or circumstances you knew about before the policy started
  • dishonest or deliberate acts
  • fines and penalties
  • bodily injury and property damage, which belong under public liability
  • services outside the activities declared to the insurer
  • liability assumed under a contract beyond what the law would impose.

How it is sold, and when a broker is the usual route

  • Brokers: most PI cover is arranged by brokers, who negotiate wording as well as price.
  • Underwriting agencies: specialist agencies write PI for particular professions on behalf of insurers, including Lloyd's underwriters. Most deal only through brokers.
  • Association schemes: some professional bodies arrange a scheme for members.
  • Direct insurers: a few sell online policies for lower-risk occupations such as consultants and bookkeepers.

A broker is the normal route for PI. Wordings vary widely, and a mandatory cover requirement usually sets minimum features that the policy must meet. Check a broker's licence on the ASIC professional registers.

What makes PI hard or expensive to get

  • Occupations with a history of large claims. ASIC has reviewed the PI market for financial advice licensees more than once.
  • Work connected with building design, certification or valuation.
  • Past claims or notified circumstances.
  • High fee income, large individual projects or overseas work.
  • New services added since the last renewal.
  • Gaps in cover, which can leave earlier work uninsured.

Business policies generally carry a duty of disclosure. Tell the insurer about every activity you perform and any matter that might lead to a claim.

Questions to ask before buying

  • Does the policy meet the minimum my regulator, association or contracts require?
  • What is the retroactive date?
  • Are legal defence costs inside the limit or on top of it?
  • Is the limit for each claim, in the aggregate, or both?
  • Are contractors and former staff covered?
  • Is run-off cover available if I stop practising?
  • What must I notify, and how quickly?
  • Which of my services are excluded?

Where to complain

Complain to the insurer first, in writing. If the issue is the broker's advice or service, complain to the broker.

The Australian Financial Complaints Authority (AFCA) is the free external complaints body for insurance. Its rules exclude professional indemnity cover under a small business policy, although medical indemnity insurance is within its rules. Ask AFCA on 1800 931 678 whether it can take your complaint, including one about a broker. If it cannot, consider independent legal advice.

Find a licensed broker

Browse businesses licensed to arrange general insurance in your city, or search every state.

Sources

Last checked: 2026-10-06

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