Some questions to consider when considering sum insured
- In a worst-case scenario, if something went wrong, what would be the financial loss to third parties?
- What is the potential for bodily injury claims, and even multiple injuries?
- What is the potential for consequential economic loss to any third party?
- What is the potential for multiple claims in any one policy year? (Note: the policy limit is in the aggregate but normally with an automatic reinstatement for PI policies.)
- What is the level of potential legal and investigation costs which may be incurred by a successful claimant or claimants over the life of the claim?
- What is the level of potential defence and investigation costs incurred by or on the insured’s behalf over the life of the claim?
- Is the policy limit inclusive of defence costs or not?
- How long may a claim take to settle? Sometimes this can be eight to ten years or longer, which means the legal costs and interest liability will mount, as will the effect of inflation.
- How many parties are likely to be implicated in any claim or action? The more parties there are, the more difficult and costlier it is to settle a claim.
- What is the nature, scale, and complexity of work done in the past and during the policy period? (Note: a policy covers exposure from past work where the retroactive date has been extended to do so.)
- What is the overall contract/project value the insured works on? The insured may have a small part and only earn a small amount of fees, but their acts, errors or emissions could delay the entire contract/project.
- How many prior years are there where risk exposure may arise? In some cases it may take years before a liability becomes apparent to the Insured.
- What is the exposure from ‘incoming principals’ risks at prior corporate entities, or merged or acquired entities?
In general, a sum insured of less than $5 million is unlikely to be adequate for even a small practice which assesses its exposure as low.
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