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The question of "how much professional indemnity insurance should I purchase?" has long challenged building surveyors seeking to protect themselves from potential liabilities. In the past, if you asked an insurance broker this question, the response would often be "as much as you can afford." However, with the implementation of the AIBS Professional Standards Scheme (PSS), the answer to this question is much clearer.
By introducing the PSS, the industry moves away from a situation where financial capacity dictates the level of insurance coverage, to a standardised system where liability limits align with professional standards. The PSS empowers building surveyors to make informed decisions based on their specific needs and risk exposures. It eliminates the guesswork, uncertainty, and potential financial strain associated with determining the optimal level of professional indemnity insurance coverage.
For future work that is covered by the PSS, there are clearly defined levels of coverage providing building surveyors with a framework for determining their insurance needs (i.e., Level 1; $2.5 million, Level 2; $1.5 million, etc.). This shift simplifies the decision-making process and ensures that professionals are not burdened with excessive insurance costs that eat into their profitability.
If you decide to purchase more insurance than the minimum level required by the PSS, you have the freedom to do so. The PSS does not impose any restrictions on the amount of insurance you can obtain.
An increased limit of indemnity is relevant when considering coverage for run-off exposures that fall outside the coverage provided by the PSS. Additional limits can provide protection for past projects or services that occurred before the implementation of the PSS. It ensures that potential claims arising from those earlier works are adequately covered.
Additional insurance coverage beyond the PSS minimum may be necessary if a building surveying business applies for an extension of liability cover from the AIBS. Typically, the two main categories that extensions will typically fall under are Government Tenders and Commercial Projects. This remains an option for large-scale projects, however many building surveying businesses have successfully maintained the PSS Limit of Liability despite initial higher demands.
In the absence of a statutory limitation of liability, building surveyors face a stark reality: regardless of the insurance limit they purchase, their liability remains unlimited. This means that if a claim were to arise that surpasses the limit of their insurance coverage, they would still be personally and professionally liable for the amount exceeding that limit. In such a scenario, not only is their insurance insufficient to cover the claim, but their personal and business assets could also be at risk.
This potential exposure to unlimited liability underscores the critical importance of the (PSS) in providing a vital safety net for building surveyors. The PSS sets a specific liability cap that is matched to the minimum insurance requirements, negating the risk of a gap between the liability owed in the event of a loss, and the protection offered by their insurance policy. Without the PSS, building surveyors are left vulnerable to the financial consequences of claims that exceed their insurance coverage, a risk that could have far-reaching implications for both their personal and business financial well-being.
Regulators recognise the value and efficacy of the PSS in determining appropriate liability limits for building surveyors. Recent amendments to clause 28F of the WA Commerce Regulations in 2023 reflect the ongoing efforts to establish what constitutes an adequate limit of liability for professional indemnity insurance in this sector. The fact that regulators are grappling with this question highlights the uncertainty and complexity building surveyors face in the absence of a PSS. It also serves as a resounding vote of confidence in the rigor of the PSS.
As the industry continues to evolve, building surveyors can confidently navigate the insurance landscape together with experienced insurance brokers, secure in the knowledge that the PSS provides a robust framework for managing liabilities. This newfound clarity and the related cost-savings have positioned the PSS as a vital tool for building surveyors in navigating insurance coverage.
Understanding the intricacies of insurance programs can be daunting, especially as building surveyors transition to the PSS. At Honan, we understand the unique challenges professionals in this industry face. Our team of specialist insurance brokers is well-equipped to provide tailored guidance and support, ensuring that building surveyors make informed decisions about their insurance programs. Whether you are considering the PSS or require assistance in optimising your insurance coverage without the scheme, we can help you chart a course that best suits your business needs.
Head of Placement - Professionals
