Articles
When I was an army officer I served in Iraq and Afghanistan, where analysing, prioritising and mitigating risk was crucial. I had to ensure that my risk management was precise because if I got it wrong lives were put in unnecessary danger. This varied from negotiating which route to take through a village while on patrol to high-octane combat situations while ensuring that friendly-fire incidents did not occur. The process of managing risk was never far from my mind.
Engineering companies of all sizes must be aware of risk and manage it appropriately. One element of risk management that has gained increasing prominence over the past decade is insurance, particularly professional indemnity insurance (PII). The standards required of businesses by clients and regulators are higher than ever. Combine this with the pressure for companies to reduce fees to win work and it is clear to see why a gap might open up between client and contractor expectations. If things do go wrong, what might have been a grumble in a stronger economic climate can quickly escalate to an allegation of professional negligence. In these situations PII can be invaluable.
While PII policies vary in the level of cover offered, broadly speaking they will protect you against legal liabilities arising from the conduct of professional business as a result of any breach of duty of care by you or by any person for whom you are responsible, including employees and subcontractors.
The limit of indemnity on a PII policy differs from as little as £100,000 up to millions of pounds, depending on your requirements. The limit of indemnity will determine the maximum amount that insurers pay out for either a single claim or in entire policy year. As with motor insurance, policies will be written with an excess which can vary from a few hundred pounds to hundreds of thousands of pounds.
The policy wording, which defines the breadth of cover being purchased, will vary from insurer to insurer. It is important that you ensure you are buying an appropriate level of cover and that it applies to the full range of work you are involved in.
Choosing PII can be daunting. Policy wordings are difficult to understand and quotes provided by different insurers can contrast enormously. For this reason, engineering firms should work with a specialist professional indemnity broker who will assist in finding an appropriate policy at the right price.
A good broker will provide guidance on risk management and ensure that there is a sufficient support mechanism in place for you.
Many people fail to appreciate this, believing that a broker’s only role is to secure the cheapest cover. This approach, while understandable in these challenging economic conditions, may prove a false economy if the policy fails to pay out when a claim arises.
Even the most reputable companies can find themselves on the wrong end of an allegation. A claim is not a reflection of business pedigree – most claims are simply attributable to human error which is ultimately very hard to guard against. Protection against unexpected scenarios is imperative, which is why a firm should manage the risks outside its control. One of the best ways to do this is to insure against them while also ensuring that controllable risks are managed appropriately.
Throughout my life on the front line I have learned that there are situations that insurance cannot protect soldiers from – lives cannot be reinstated or injuries always repaired – but this should underline that, if PII protects you and your business from the unexpected, then it must be a necessity for your long-term integrity.