Professional Indemnity Vs. Management Liability – What Your Business Need? | Upcover

Have you just started a new business?

Or perhaps you’ve been running your business for a while and are wondering if you have the right insurance coverage to protect your operations against potential claims or legal action as your business continues to grow?

We get it. 

With so many types of insurance available and so little time to get familiar with them, it can be hard to know which policy suits the needs of  your business.

Two insurance policies that can be highly beneficial to your business are professional indemnity (PI) and management liability (ML) insurance. Now, both types of insurance can protect you and serve as a safety net in the event of legal action, but there are some differences between the two.  

And it’s crucial for you, as a business owner, to understand these differences so that you can make an informed decision and choose the right policy for your company, and protect your assets and reputation.

So, to help you in this task, we’ve highlighted below the key differences between management liability and professional indemnity insurance products that we offer at upcover. This is we hope one step to helping you answer the question of what insurance your business, and when you might need it. 

And as always, me or the upcover team are only a phone call away if you need more information!

Professional Indemnity

Professional indemnity insurance is a type of liability insurance that protects a business against third-party loss or damage resulting from advice or services provided by the company. This is usually about allegations by clients regarding allegations of failure to provide adequate services, or allegations of negligence. 

More specifically, it covers your company in the event you, your business or one of your employees, are found liable for neglect, error, breach of duty, or failing to do something while providing professional services or advice that resulted in negative financial consequences for the person making the claim.

Why is professional indemnity so important?

If you have professional indemnity insurance, there could be cover for claims of breaches of professional duty, which includes allegations of failing to act, negligent services, and errors that result in injury, loss or damage to your clients. Having insurance coverage in place, means that you won’t have to fork out thousands of dollars to compensate your client from your business or your personal savings, too. 

Professional indemnity insurance allows you to protect your assets and continue your operations without worrying about financial and reputation damage a claim could cause to your business or personal.

It’s important to note that despite this example, the risk of a claim isn’t always less because you are a small business or just starting out. As a business owner, you’re always exposed to the risk of a disgruntled customer making a claim against you. 

And while this is beyond your control, protecting your business against this risk with insurance is one way to help mitigate that risk and its impact to your business.

Management Liability

Management liability insurance (which includes directors and officers insurance) is designed to cover your business from a range of business risks that can occur even outside typical claims by your clients for property damage or injury or allege negligence. 

More specifically, management liability typically covers your business for the following:

• Directors’ and officers’ liability: This policy covers your business, directors, officers, and managers against claims such as wrongful acts.
  
  
• Entity liability: This covers claims that can be brought against your business for any litigation that might fall outside typical claims by your clients for property damage or injury, or allege negligence. 
  
  
• Employment practice liability: This policy covers your business for claims made for unfair dismissal, discrimination, or bullying by employees including prospective, full time, part-time or casual.

• Crime: This policy covers your business against third-party fraud or white collar crime. Note that corporate crime is vast, and not all types of criminal activities are covered under this policy, i.e. it may not cover fraud from your employees, and may not cover cyber crime as these are usually covered by other policies you may already have. So make sure to read through the details or ask your insurance partner, broker or representative.

• Statutory Liability: Statutory liability covers the cost of defence, fines, and penalties in the event you or one of your managers breaches an act of legislation.
  
  
• Tax Audit cover: This includes cover for your business in responding to an investigation or tax audit that might arise from the Australian Tax Office, for example. 

Let’s take an example of a management liability claim to help you better understand the difference between management liability vs. professional indemnity. 

Let’s say that one of your directors had to let go of one of your employees because the company is going through a difficult time financially and has to reduce its operating costs. The employee wasn’t performing and was often late for work, and a few clients had complained about the disappointing results they delivered. Therefore, it was the obvious choice. 

The employee lodged a claim with Fair Work Australia for unfair dismissal. If you hold management liability insurance, this type of claim could  be covered under the Employment Liability insurance section. 

Now, you might not be convinced this will ever happen to you. 

But the likelihood of a claim that could be covered under a management liability policy has tripled in the last five years, with 50% of notifications to Fair Work resulting in a claim. 

So, which insurance policy should you choose? 

Well, the answer lies in the need, size and risks in the kind of businesses that you are building. At the end of the day, the choice is always your own as a business owner. 

Professional liability insurance is a usual requirement for any service based business - whether a personal trainer or hairdresser to a white collar worker. It is often a requirement for certain professions to be certified with their association or to work with certain clients.  For instance, IT developers, accountants, engineers, consultants, graphic designers, etc., can all benefit from insuring their business with professional liability insurance. 

Management liability specifically covers business risks outside those possibly brought by services from a client, and risks from its management and may not be a necessity for small businesses that don’t have a management team, or employees for example. 

Typically, if your business does, you might need both types of insurance as management liability doesn’t cover the rest of your employees. 

What’s Next?

If you have any questions or need more information regarding what’s best for your business between management liability or professional indemnity, don’t hesitate to get in touch with one of our friendly customer success team members at upcover. Alternatively, if you’re interested in taking a closer look, please feel free to jump on our instant quote generator to receive quotes from market-leading insurance and get insured within minutes at upcover.com.

Also, our blog features many articles covering a wide range of insurance policies, and we have plenty of guides and articles to help business owners grow and boost their bottom line. So, make sure to check it out!