Indemnity insurance is an umbrella term for business insurance designed to pay for a covered loss or claim, up to your policy's specified limit. In Australia, the term usually means professional indemnity insurance.
Other products also carry the word, such as warranty and indemnity cover for business sales and investment manager indemnity for fund managers. Each product is designed to respond to a different kind of loss, so the name alone doesn't tell you what a policy includes.
Cover depends on the policy and insurer you choose. Check the policy wording and its terms and conditions for what is and isn't included.
What does indemnity mean in insurance?
Indemnity means the insurer may pay for a covered loss to put you back in the financial position you were in before it. The aim is to restore you rather than leave you better off.
The specified limit is the most the insurer may pay, subject to the policy terms. The excess is the amount you pay towards each claim.
After paying a claim, an insurer may also take over your right to recover the money from whoever caused the loss. This is called subrogation.
What are the types of indemnity insurance?
The main types in Australia are professional indemnity, medical malpractice, investment manager indemnity and warranty and indemnity. Principal's indemnity is an extension added to a liability policy rather than a separate product.
| Type |
What it is designed to cover |
Commonly arranged by |
| Professional indemnity |
Claims that your advice, service or work caused a client financial loss |
Consultants, accountants, IT professionals, engineers, allied health practitioners |
| Medical malpractice |
Claims that a patient was harmed by care a medical professional provided |
Doctors, nurses, dentists, telehealth providers |
| Investment manager indemnity |
Claims alleging errors by investment professionals, plus management liability risks |
Fund managers, boutique asset managers, responsible entities |
| Warranty and indemnity |
Loss after a business sale when a warranty in the sale agreement proves wrong |
Buyers and sellers of businesses |
| Principal's indemnity extension |
Liability of a client or head contractor arising from your work |
Contractors under construction contracts |
Swipe left or right to see the full table.
Cover, sections and limits vary between insurers and policy wordings.
Medical malpractice
Medical malpractice insurance, sometimes called medical indemnity, is designed to cover claims that a patient was harmed by a medical professional's care. It may include legal defence costs, compensation and any settlement, subject to the policy terms.
Investment manager indemnity
An investment manager indemnity policy bundles several sections for investment professionals. Sections may include professional indemnity and directors and officers liability, designed to cover claims about decisions made as a director or officer. Other sections may include employment practices liability for claims such as unfair dismissal, crime cover for losses from theft or fraud and regulatory investigation costs.
Warranty and indemnity for business sales
Warranty and indemnity cover is designed to help protect the buyer or seller of a business when a warranty in the sale agreement is breached. It may respond to loss that appears after the sale is completed, subject to the policy terms.
Principal's indemnity
Principal's indemnity extends a liability policy to a project principal, client or head contractor. It is designed to apply to their liability arising from your negligent work or supplied products, using the same limit and terms as your policy. Construction contracts commonly ask for this extension.
Is indemnity insurance the same as professional indemnity?
People often use the two names for the same cover, because professional indemnity is the type businesses commonly ask about. Professional indemnity insurance is designed to cover claims that your advice, service or work caused a client financial loss. It may include legal defence costs, compensation and any settlement you are legally liable to pay, subject to the policy terms.
Professional indemnity claims generally involve an allegation such as negligence, and any financial loss that may have arisen from this. Refunds or the cost of redoing your own work are commonly excluded.
The professional indemnity insurance guide explains what a policy may include and how limits work.
How does a professional indemnity policy respond to claims?
Professional indemnity is generally a claims made policy, meaning that a claim falls within the period of insurance when it's brought against you as a letter of demand or writ or civil suit, not when the services were originally provided. So it's important to keep your cover active and continuously in place (continuity of cover).
This then means that the retroactive date should cover you for services as long as you have been providing them. You can enquire with your broker or the upcover team about how you can also get an 'unlimited' retroactive date.
If you're concerned about a particular client service or experience, you can always consider telling your insurer as soon as you become aware of an incident, complaint or circumstance that could lead to a claim. Importantly, this doesn't impact your premiums or cost of insurance until a claim arises, and it means that any future claim is triggered from the original date you notified the insurer, so it helps spread the risk of claims across policy periods too.
You don't need to wait for a formal demand. Also keep in mind that notifying of a claim late may affect your claim.
You can start a claim through the make a claim page. Admitting liability, incurring costs or agreeing to a settlement before you notify your insurer may affect your claim. Starting a claim does not confirm that your claim is covered; your insurer assesses it under the policy terms, conditions, exclusions and limits.
Is public indemnity insurance a real type of cover?
Public indemnity insurance is generally not a product name used in Australia. People who use the term usually mean public liability insurance, or they have mixed up public liability and professional indemnity.
Public liability insurance is designed to cover claims if someone is injured or their property is damaged in connection with your business. A customer slipping in your shop is a common example.
Many businesses arrange professional indemnity and public liability together because, while they may respond to different types of insurance, they may arise in the same or related claim. Whether professional indemnity, public liability or both respond depends on what the client alleges, the policy wording and the insurer's assessment. The professional indemnity vs public liability guide compares them side by side.
Who requires indemnity insurance in Australia?
Indemnity insurance is not a general legal requirement for Australian businesses, but some regulators, professional schemes and contracts require professional indemnity cover. The table shows examples, each with its source.
| Who sets the requirement |
What the source says |
Source |
| AHPRA and the National Boards |
Registered health practitioners must have professional indemnity insurance arrangements that comply with the relevant registration standard |
AHPRA registration standards page
|
| ASIC, for financial services licensees |
Licensees serving retail clients must have arrangements for compensating them; holding professional indemnity cover is the primary way to comply |
ASIC Regulatory Guide 126
|
| Professional standards schemes |
Scheme members are required to have the benefit of an insurance policy covering their liability cap |
Professional Standards Councils policy statement
|
| Clients, leases and associations |
May ask for evidence of cover and a minimum limit before work, membership or a lease starts |
Your contract, lease or association rules |
Swipe left or right to see the full table.
Outside these rules, the requirement usually comes from a client contract, tender, lease or association. Clients commonly ask for a certificate of currency, a document from the insurer confirming your policy and its limits.
What does indemnity insurance not cover?
Exclusions depend on the product, and each policy wording lists its own. For professional indemnity policies, exclusions commonly include, but are not limited to:
- claims and circumstances you knew about before the policy started
- services not listed on your policy schedule
- services provided before the retroactive date, the earliest date of past services the policy may respond to
- liability you take on under a contract that would not otherwise exist under the law
- dishonest, fraudulent or criminal acts by you (dishonesty by an employee may sit under a fidelity or crime section, designed to cover losses from employee dishonesty, where the policy includes one)
- refunds, or the cost of redoing, correcting or improving your own work
- claims brought in courts in the United States or Canada
- fines and penalties that cannot be insured at law
- injury or property damage from an accident connected with your business, which generally sits with public liability
- cyber incidents and data breaches, which generally sit with cyber insurance
Warranty and indemnity policies commonly exclude issues the buyer knew about or that were disclosed in the sale process. Forecasts and earn-outs are also commonly excluded. Investment manager indemnity policies commonly exclude losses caused purely by market movement without a wrongful act.
Important: This list is not exhaustive. Exclusions vary between insurers. Always refer to the policy wording and its terms and conditions for the exclusions that apply to you.
How much does indemnity insurance cost?
The cost depends on the product and on factors such as your business type and activities, turnover and number of employees. Location, claims history, chosen limit and excess also play a part.
Limits commonly range from $250,000 to $20 million or more, depending on the profession and its contracts. The professional indemnity limits guide explains who sets minimums. An upcover representative or a broker can talk through what those limits mean for your business.
The professional indemnity insurance cost guide sets out the factors that affect the price of professional indemnity.
How upcover can help
upcover arranges professional indemnity, warranty and indemnity and investment manager indemnity insurance for Australian businesses. upcover works with 80+ insurance partners and can arrange quotes from a range of insurers.
- 70,000+ businesses covered
- 4.9/5 customer rating
- Certificate of currency available once your policy is confirmed
You can request a quote for professional indemnity insurance online.
Frequently asked questions
What is indemnity insurance in plain English?
Indemnity insurance is a policy where the insurer agrees to pay for a covered loss or claim, up to the specified limit. The term usually refers to professional indemnity, designed to cover claims that your work caused a client financial loss.
What is business indemnity insurance?
Business indemnity is another name people use for professional indemnity cover taken out by a business. Some people also use it for business liability cover in general, so check which product a contract or client is asking for.
Is indemnity insurance compulsory in Australia?
Indemnity cover is compulsory in some regulated areas rather than for businesses in general. Registered health practitioners face a requirement set by AHPRA. Financial services licensees with retail clients face one explained in ASIC Regulatory Guide 126.
Do sole traders need indemnity insurance?
Sole traders commonly arrange professional indemnity when a client, contract, association or regulator asks for it. A sole trader giving advice or designs to clients may also consider it where no one sets a requirement.
How is an indemnity clause different from indemnity insurance?
An indemnity clause is a promise in a contract to pay for another party's losses, while an insurance policy is a contract with an insurer. Whether a policy responds to liability you accept under a contract varies between policy wordings, so always check with your broker or the team at upcover.
Does indemnity insurance cover injury to a customer?
Injury to a customer or damage to their property generally sits with public liability insurance, not professional indemnity. Professional indemnity is designed to respond to claims about money a client says your work cost them.
The information in this article is general information only and does not take into account your objectives, financial situation or needs. Registration standards, licensing obligations and contract requirements for indemnity insurance are set by regulators, professional bodies and contracting parties and can change, so check with the relevant body. Before deciding whether a product is right for you, read the policy wording and its terms and conditions. upcover Pty Ltd ABN 17 628 197 437 is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.
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