ACE Report Cautions Multinationals About Rising Professional Indemnity Risks
Increasing numbers of international firms are being exposed to the risk of professional negligence, misrepresentation, or breach of duty claims when operating both at home and abroad, according to a report published by ACE Group.
There are increasing numbers of jurisdictions where professional indemnity (PI) insurance is compulsory as well as a wider range of professions required to have cover, explained the report entitled “Structuring Multinational Insurance Programmes – Issues for risk and insurance managers to consider when insuring professional indemnity risks across borders.”
These professions include accountants, architects, engineers, doctors, healthcare professionals, solicitors, barristers and insurance intermediaries.
To help navigate this changing environment, the ACE report lists some key questions that insurance buyers and risk managers at international professional services companies should consider when designing multinational PI insurance programs. The questions include:
- Which jurisdictions apply? It is important to understand the jurisdictions that apply (a company’s “home” market as well as other markets where a firm offers services). The report said this will help determine the applicable legal framework for PI liability; the frequency of claims that could be expected; whether PI insurance is compulsory, and the implications of providing advice in a country where the organization does not have permanent operations.
- What scope of professional services does the organization provide? With many professional firms presenting themselves as multi-service organizations offering a range of advisory services, risk and insurance managers need to be fully aware of the different service models in use and which services are being offered in what territories in order to ensure that their PI insurance adequately covers them against all potential claims scenarios.
- Who needs to be insured? While clarity on this question is crucial, many organizations fail to determine precisely which of their operating entities and their people are exposed to the risk of a PI claim in the different jurisdictions in which they operate.
- What are the key elements of a PI insurance program for the organization? In order to determine how their PI exposures can best be insured, firms need to consider a number of key elements by which PI insurance is delineated so they can determine their specific needs. These include the period of insurance, defense costs, retroactive date, types of liability covered, claims handling requirements, and territorial and jurisdictional limitations.
- How should a multinational PI insurance program be structured? Practical and technical considerations that need to be explored when structuring multinational PI insurance programs include: whether coverage is required only for the parent/headquarter level; whether subsidiary/local affiliated offices level cover is needed, or if a combination of the two would provide better protection. The legal status of “non-admitted” polices locally also is important.
- Has the role of excess insurance adequately been considered? Insurance buyers need to consider the role of excess insurance – either of the primary policy or excess cover as an umbrella tower purchased outside the jurisdictions where an organization’s risks are situated. The report explained that excess insurance policies are governed by the same regulations and tax rules as those applying to the primary policies.
The ACE report was authored by Suresh Krishnan, executive vice president, Global Accounts Division, ACE Overseas General, and Grant Cairns, regional financial lines manager for Continental Europe, Eurasia and Africa in collaboration with the international law firm Kennedys.
The full checklist of questions for risk and insurance managers can be found in the ACE report, which was published this month.
Source: ACE Group
