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Understanding Professional Indemnity Insurance: A guide for building surveyors under the Professional Standards Scheme

Understanding Professional Indemnity Insurance: A Guide for Building Surveyors Under the Professional Standards Scheme
Person's name and title

By Travis Gauci , 

Placement Specialist FINPRO

03/10/2023 · 3 minute read

Navigating the complexities of insurance can be a daunting task for building surveyors. However, with the introduction of the AIBS Professional Standards Scheme (PSS), building surveyors can move 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 aims to empower building surveyors to make informed decisions based on their specific needs and risk exposures. It seeks to eliminate the guesswork, uncertainty, and potential financial strain associated with determining the optimal level of professional indemnity insurance coverage.

How does insurance work within the PSS?

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 may affect their profitability.

It’s important to note the PSS does not impose any restrictions on the amount of insurance you can obtain. If you decide to purchase more insurance than the minimum level required by the PSS, you have the freedom to do so.

When should increased limits be considered?

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.

Uncapped Liability: What if Your Insurance Limit is Inadequate?

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.‍

Why does the PSS matter when it comes to insurance?

Regulators recognise the value and efficacy of the PSS in determining appropriate liability limits for building surveyors. 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, 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.

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modelling, analytics, or projections are subject to inherent uncertainty, and any analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. Page Compliance ID