Professional Indemnity for Intermediaries

• Professional Indemnity for Intermediaries
• Protecting Brokers in an Increasingly Complex Risk Environment

Insurance intermediaries play a critical role in helping clients understand risk and secure the right insurance cover. However, as policies become more complex and insurers introduce more specific conditions and exclusions, the exposure to professional liability for brokers continues to grow.

In South Africa, many intermediaries rely on Professional Indemnity (PI) insurance to protect themselves against claims arising from errors, omissions or negligent advice provided in the course of their professional services. “We provide a specialised solution for intermediaries through a binder agreement, offering tailored cover designed specifically for the risks faced by brokers. In an increasingly litigious society, recent claims in the space have highlighted three very prominent recurring issues that intermediaries should be aware of,” says Elmien Marx, Principal Broker for Intermediaries and Trustees at Aon South Africa.

1. When Advice Cannot Be Proven
One of the most common scenarios leading to professional indemnity claims occurs when a client’s insurance claim is repudiated by the insurer. In these cases, the client may allege that their broker failed to properly advise them about the relevant risks or policy conditions. If the client can demonstrate that they were not adequately informed, the broker may be held liable for the resulting financial loss.

“A key challenge in defending these claims is documentation. Many intermediaries do not keep sufficiently detailed records of client interactions, advice provided or disclosures discussed. When a dispute arises months or even years later, the absence of written evidence can make it extremely difficult for a broker to demonstrate that the correct advice was given,” Marx illustrates.

“The result can be significant financial exposure, particularly where high-value assets or large claims are involved. It is exactly why it is crucial for intermediaries to maintain comprehensive records of advice, correspondence and client confirmations as one of the most effective ways to protect themselves,” she adds.

2. The Risk of Delayed Notification
Another frequent issue is delayed notification of potential claims. Professional Indemnity policies typically require intermediaries to notify insurers as soon as they become aware of an incident that could potentially lead to a claim. However, in practice, brokers sometimes attempt to resolve disputes directly with clients before informing their insurer.

“By the time the matter is brought to the insurer’s attention, it may already have been settled or admitted outside the insurer’s knowledge or involvement. In these circumstances, the insurer may decline the claim, leaving the intermediary to bear the financial brunt of the incident. That is why it is important to notify insurers of any incident that may give rise to a claim as early as possible, even if the situation appears minor or uncertain at the time,” Marx urges.

3. Accurate Disclosure
Another area where disputes often arise is during the placement of Professional Indemnity cover itself. In practice, intermediaries must complete a proposal form detailing key aspects of their business, including company information, directors, business activities, and revenue generated from broking services, as any insurance client would.

“The information forms a fundamental part of how insurers assess risk and determine the premium for the policy. Income declarations form an integral part of the rating process. If income is under-declared, the policy may only respond proportionally at claims stage. For example, if an intermediary declares only half of their actual revenue, the insurer may only pay a corresponding portion of the claim,” Marx explains.

This can lead to significant dissatisfaction when a claim arises, particularly if the intermediary was unaware of the consequences of inaccurate disclosure. Ensuring that all information provided to insurers is accurate, complete and supported by financial documentation is therefore essential when arranging Professional Indemnity cover.

The Importance of Clear Client Advice
Many disputes between clients and intermediaries stem from policy conditions that clients either did not fully understand or were unaware of. Certain clauses require specific actions by policyholders in order for cover to remain valid. If these conditions are not met, insurers may decline claims.

Examples include:

• Some insurers now require two tracking devices to be installed in certain high-value 4×4 vehicles. If a vehicle is stolen and this requirement has not been met, the claim may be rejected.
• Home insurance policies often require that alarm systems be activated whenever the property is unoccupied. If a burglary occurs while the alarm was not armed, the insurer may repudiate the claim.

“In situations like these, clients may argue that their broker did not adequately explain these conditions and is why a client’s understanding of the terms of their cover and confirming that this advice has been given, is essential,” Marx explains.

What Professional Indemnity Insurance Covers
Professional Indemnity (PI) insurance is designed to protect intermediaries against financial losses arising from claims of negligence, errors, omissions or breaches of professional duty in the course of providing advice or services.

The cover typically includes:

• Legal defence costs
• Damages or settlements payable to clients
• Claims arising from professional negligence or incorrect advice
• Errors or omissions in the placement or administration of insurance policies

As the regulatory and insurance landscapes continue to develop, intermediaries face increasing pressure to demonstrate professionalism, transparency and sound risk management practices.

“Specialised PI solutions that are tailored to the needs of the intermediary market can provide essential protection when things go wrong. However, insurance alone is not enough. Good record-keeping, early notification of potential claims and accurate disclosure remain fundamental to ensuring that cover responds when it is needed most,” Marx concludes.

Disclaimer
The contents hereof should not be construed as legal advice on any matter. You should not act or refrain from acting on the basis of any content included in this communication without seeking professional legal counsel. This communication does not constitute or create a lawyer-client relationship between us.

About Aon
Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries and sovereignties with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their businesses.
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Author: Thuli Sikhosana from TS Communications on behalf of Aon SA.