August 9, 2013

What is Professional Liability Insurance? Do I need it?

Source: Alexandra Swan is the marketing manager for North American Professional Liability Insurance Agency, LLC (NAPLIA). Since 1998, this company has been providing professional liability insurance to clients all over the United States.

While some never have to look into buying professional liability insurance, this is something many others require. There are two questions you need to answer:

  • What is professional liability insurance?
  • Do I need to purchase this type of coverage?

Like many, you may not fully understand the ins and outs of this industry. Rather than attempt to explain the finer details myself, I hooked up with an industry professional who can help you better understand this type of insurance while helping you decide if this is something you need for your business.

Do I need Professional Liability Insurance?

Before we go any further, it is important to realize the type of experience NAPLIA brings to the table. This company has been in the industry since 1998, and has been named to the “Inc. 5000 fastest growing private companies” list for five years running (dating back to 2008).

Now that we have that out of the way, here is the advice provided by Swan:

1. Can you give a breakdown of what the professional liability industry entails?

The professional liability industry is a niche within the larger insurance industry that services professionals. Professional liability insurance (aka errors & omissions insurance or malpractice insurance) protects professionals from claims of negligence in the provision of their professional-related services. It is specific to the financial loss incurred by a client, versus physical injury or property damage which would be addressed by a general liability policy. Anyone who provides services, advice, or counsel to others may need professional liability insurance.

Current trends show 8% of professionals are sued – or a 1 in 12 ratio. Compare this with homeowner claims of 1 in 100 (1%), and most homeowners would not consider having their home uninsured. In addition, the financial and emotional impact on a business from defending a negligence claim can be significant. Professional liability insurance provides defense of claims – even if frivolous – as well as the cost of potential damages.

The professional liability insurance industry is itself broken down into niches. Each niche tends to service industry-specific professionals such as legal professionals, financial professionals, medical professionals, technology professionals, etc. Each industry has unique exposures that are important to understand and address through the relevant insurance products.

Other professional insurance products that tend to be closely aligned with this industry include:

  • Employment Practices Liability Insurance (EPLI) – insurance for claims made by employees against their employer for discrimination, harassment, or employment-related claims
  • Employee Dishonesty Insurance – insurance for the theft of money or securities by an employee
  • Directors & Officers Insurance – a form of professional liability that provides coverage for the actions of a director or officer of a company

2. What are the risks associated with particular groups of professionals not purchasing the proper insurance policy?

As mentioned above, any professional who provides services to clients has the potential exposure of being sued for negligence in providing those services. Some professionals may feel their exposure is minimal and that insurance is not necessary. The reality is that you do not need to do anything wrong for a client to file a suit against you. And, you will still need to find and hire an attorney to defend yourself against the suit. The financial cost of defending a claim can be devastating to an uninsured professional or company.  This does not even factor in the time required to find a suitable defense attorney and the emotional toil of responding to a lawsuit. As with most insurance, the simple “peace of mind” of having a policy in place can be priceless.

But, not all insurance policies are the same, and having insurance does not necessarily mean you are covered. Insurance policies are legal documents which outline the provided coverage promised by the insurance carrier in exchange for payment of your premium.  The complexity of these policies is usually relevant to the complexity of the services provided.  In addition, policies can contain multiple endorsements which alter or revise the coverage intent within the policy wording.

Purchasing a policy that does not provide the correct or intended coverage for your professional services can be just as bad as not having a policy, if not worse. It is recommended to work with an insurance agent that specializes not only in professional liability insurance, but also within the particular industry that you service (e.g. accountants should work with agencies that focus on accountants professional liability insurance, investment advisors should work with agencies that focus on investment advisor errors & omissions  insurance). Consider that most general insurance agencies – those that provide you with your homeowners and/or auto insurance – do not have the necessary experience in working with professional liability insurance. It is similar to the difference between your general practitioner and a medical specialist: you would probably not want your general practitioner to be the doctor who removes your appendix.

Work with an agent that specializes within your industry, and take the time to specifically understand at a minimum:

  • What your insurance policy covers
  • What your insurance policy does not cover
  • Who is covered by your insurance policy

3. What does the North American Professional Liability Insurance Agency offer that others do not?

North American Professional Liability Insurance Agency, LLC (NAPLIA) specializes in providing professional liability, errors & omissions, and related insurance products to the niche markets of accountants, investment advisors, attorneys, and other professional service practitioners.

Our unique positioning is enhanced by our belief that, in addition to insurance, education is the foundation of a strong Risk Management strategy. We work hard to provide extensive resources to our clients that assist them with managing their business, and avoid or mitigate professional liability claims.

In support of this position we provide exclusive White Papers, articles, seminars, and other resources to the industries that we serve. Our staff expertise is well known, and we frequently consult with regulatory institutions and speak at national conferences.

NAPLIA has been named to the Inc 5000, representing the fastest growing private companies in America, for five consecutive years, and is a proud member of the Professional Liability Underwriting Society (PLUS), the Better Business Bureau, and holds the highest rating from Dun & Bradstreet for companies of their size.

Final Thoughts

At this point, you should be able to clearly identify whether or not you require professional liability insurance.

If you find yourself in need of this coverage or simply have additional questions, don’t hesitate to contact the professionals at NAPLIA or leave a comment below.

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