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Home / Money / Personal Finance /  IRDAI mulls launching standard professional indemnity policy for intermediaries

A committee set up by the Insurance Regulatory and Development Authority of India (Irdai) has recommended the introduction of a standard professional indemnity policy for insurance intermediaries. This policy will help protect the insurance intermediaries against the negligence claims by their clients.

The committee report issued on 19 January stated, "Professionals and professional entities may be sued by their clients for errors or negligence during their professional duties. To cover such risks, one may opt for a professional indemnity policy."

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The insurance intermediaries, which are engaged in solicitation and distribution of Insurance products, includes Insurance Brokers (direct, reinsurance and composite), Web Aggregators, Corporate Agents and Insurance Marketing Firms.

Why there was a need for such policy?

The committee noted that insurance intermediaries have a professional duty to perform, in a time-bound manner. They are expected to exercise reasonable skill and care in the performance of their duties. However, errors and omissions are bound to happen. Professional Indemnity insurance will offer the right solution for all professionals including insurance intermediaries. So, to ensure that insurance intermediaries are protected in respect of claims made against them for errors and omissions, IRDAI requires them to take professional indemnity cover.

What is standard professional indemnity policy?

The professional indemnity policy is a liability insurance product that will protect individuals giving professional advice as well as professional entities who are service providers, against negligence claims by their clients for the errors and omissions that the professionals might make and for damages awarded in a civil lawsuit. It is a legal liability policy that will cover the financial loss suffered by the client/s resulting from a breach of professional duty.

What is covered and what is not covered

As per the committee report, "Professional indemnity policies will provide indemnity against losses arising due to errors or omissions on the part of professionals and professional entities including the employees and directors. Professional indemnity insurance can cover a broad range of risks. Apart from professional negligence, it can also cover unintentional breaches of confidentiality, loss of documents, loss of database etc. It also covers legal expenses incurred in defence of the civil suits filed on these aspects.

Professional indemnity covers, however, do not offer cover for certain instances such as claims arising out of contractual liability, liabilities arising out of terrorism, liabilities arising out of criminal acts etc."

The rates of premium under this Agreement are annual rates. Full premium under the policy shall be paid at inception. It is not permissible to accept premium in instalments. Business Turnover/fees figure wherever required shall be accurately assessed and declared by the proposer at inception of the policy, as per the committee report.

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