Thousands of South African professionals run a daily gauntlet of operating businesses and offering fee-based consulting services without the safety net of professional indemnity (PI) insurance.

Many have been doing so for years, and are increasingly at risk of huge financial losses in the event of a costly mistake leading to a claim against them. Professional Indemnity claims across many professions have risen sharply over the last five years as society becomes more litigious, most notably in the legal and built environment industries.

This is according to Malcolm Padayachee, Manager of Professional Risks at Aon South Africa, a risk advisory and insurance brokerage.

“Professional Indemnity insurance is designed to protect the likes of architects, engineers, attorneys, brokers, doctors, estate agents – essentially an individual or practice – who takes a fee for providing a service.

“It should be at the top of the list of risk management for all professionals, but our own experience shows that many professionals, particularly independent consultants, are still operating without cover and exposing themselves to financial ruin in the event of a mistake that results in a claim,” explains Malcolm.

Consulting professionals still operate without PI

For many professionals, including people like accountants, financial planners and insurance brokers, professional indemnity insurance is a legal requirement.

In many other industries, the associated governing body or industry association sets strict guidelines specifying a level of professional indemnity insurance cover that is required to trade and be a member of the professional body.

However, many professionals operate without PI cover, especially when trying to cut back on costs, or they believe it is only needed by careless professionals who have to worry about a claim being lodged against them.

“This is definitely not the case, and even if a professional has acted in full accordance with the law and professional standards, if a claim is lodged against them they will need to defend their position and actions in a legal process, the defence costs of which can be massive and drawn out over a number of years.

Claims notifications will continue for the long term

“Malpractice claims are by nature long-tailed and can take years to come to a resolution, during this time a practitioner without PI protection would be personally liable for the legal costs and would run the risk of having all their assets attached, facing financial and reputational ruin,” says Malcolm.

“In an environment where your reputation is fundamental to your ability to secure work, a professional cannot ignore any accusations of negligence. Claims must be defended which is a lengthy and very costly process. Over and above the legal defence costs, PI insurance would also cover for any third party damages where malpractice is proven,” he adds.

In the current economic downturn, and especially in industries with significant skills shortages, which adds pressure to under-resourced teams, there is every reason to believe that the current increase in claims notifications will continue for the long term.