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Professional Indemnity

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Presentation on theme: "Professional Indemnity"— Presentation transcript:

1 Professional Indemnity
Insurance Ece Bilgiç Baykal Casualty Department Financial Lines Supervisor Allianz Insurance

2 I. General Market Overview on PI
- Current Trends - General Scope of Cover - Limits & Rating & Deductibles - Loss Experience - Summary of Statistics II. Professional Indemnity Insurance - Scope of Cover - Typical Professions for PI Cover - Underwriting Considerations - Typical Exclusions

3 III. Legal Professions - Legal Profession in Turkey - Scope of Work - PI Exposures - Claim Examples IV. Accounting Professions - Accounting Profession in Turkey V. Technical Professions VI. Questions & Closing

4 I. General Market Overview on PI
Current Trends An increasing demand for PI cover in the market, mainly due to: - rising number of foreign companies - increase in claims awareness - creation of obligatory insurances & expectation that more will be created in very near future Public awareness is largely limited to medical malpractice cases, but even so, there is still little understanding that legal action may be taken against professional people. Introduction of uniform general conditions, including special clauses for specific professions, has obliged companies to look differently at the business & pay more attention to segmentation. Until 2008, market was dominated by Chartis, but now there are several players in the market other than Chartis: Anadolu, Axa & others

5 I. General Market Overview on PI
Legistlative update i.r.o. PI insurance for Doctors & Dentists - Doctors & dentists are required to be covered by PI insurance w.e.f. July 30, 2010 under Full Workday Law No: 5947 - The law states that doctors & dentists who are employed at university or state hospitals & also work in private practices must work full time in their state positions or resign & move to a private practice - Prescribed limit by law: TL per claim & TL agg. - Insurance premiums are mandated by Treasury & Ministry of Health, ranging between TL depending on area of speciality, with provision for loadings up to 50% or discounts up to 20% based on a bonus-malus type scale. - Doctors or dentists working at public or private institutions are required to pay half their insurance premiums & their institutions will pay the remainder. Those working in private practice must pay the entire premium on their own.

6 I. General Market Overview on PI
Obligatory PI insurances by law - Professional service providers for banks => requested to get PI cover by Banking Regulations for an amount equal to 2 times of contract value - Insurance brokers => required to get PI cover for a limit of at least TL e.e.c. & TL 1 Mio agg. - Electronic certificate service providers => required to arrange "certificate financial liability insurance" as established by the Electronic Signature Law published in Official Gazette of Jan 23, 2004 & various accompanying regulations. No limit is established by law. No such insurance policies so far! - Credit agencies & real estate valuers => requested to get PI cover by Regulations issued by Capital Markets Board. No limit is specified. - Doctors & dentists => required to be covered by PI insurance as of July 30, 2010 under the Full Workday Law No 5947, with a LoL TL per claim & TL agg.

7 I. General Market Overview on PI
General Scope of Cover Policy trigger: Almost exclusively claims-made, but action-committed triggered policies are also available in the market. Although no legal provision exists regarding ERPs or discovery periods, Turkish PI GC offer the options of; at least 1 year retroactive cover (iro claims-made trigger) and/or 2 years discovery period (iro action-com. trigger) *** 5-years discovery period is given for accounting professions with a specific clause under PI GC Territorial scope: Usually “Turkey”, but may be extended Law & Jurisdiction: Generally “Turkey”, but any other law & jurisdiction can be established by mutual agreement.

8 I. General Market Overview on PI
Limits & Rating & Deductibles Limits for accountants & law firms are relatively low, about 100 – 300k TL, in most cases although large companies have limits that reach to 1 Mio TL or can go as high as 10 Mio TL. MedMal is currently written for hospitals or clinics with limits up to TL at most. Individual doctors are required to buy separate coverage with compulsory limits. The limits for A & E professionals are between 500k – 1 Mio TL frequently to comply with contract terms. Rating for small / uncomplicated risks is normally carried out by local insurers, while more complex risks - or those with higher limits – are generally referred to reinsurers. Rates for some compulsory professions, i.e. MedMal, are mandated by law. Deductible is applied, generally varying i.a.w. client's profile, company size, contract/annual fee amount & typically subject to a minimum of TL for an individual professional.

9 I. General Market Overview on PI
Loss Experience Frequency of losses, rather than size (severity), is a major concern for the insurers! Most claims tend to be from accountants or lawyers, mainly for small amounts relating to indemnities payable to clients for failure to file tax returns or financial statements by the due date, omitting to enter an appeal, mislaid documents, etc. An increasing loss trend i.r.o. Compulsory MedMal Insurance for doctors. Together with rising claims awareness, the amount of outstanding losses in the market is growing rapidly. Insurers are concerned about the condition that mandatory tariff premiums for MedMal insurance are too low & inadequate, given the long-tail nature of the business.

10 I. General Market Overview on PI
Summary of Statistics Total written PI premiums in 2010 amounted to TL Mio, representing 37% of all liability premium income. Premium income increased by 131.5% over 2009 largely due to the new category of compulsory medical malpractice insurance. Compulsory PI cover for doctors & dentists accounts for nearly 50% of PI premium income. GWP & Paid Claims Ratios for the last 4 years

11 I. General Market Overview on PI
PI market (excluding MedMal) is currently dominated by 3 insurers: Anadolu, Chartis, Axa. Top 5 companies in 2010 with their respective market shares Emergent MedMal market is currently dominated by 2 insurers; Anadolu & Axa Top 5 companies in 2010 with their respective market shares

12 II. Professional Indemnity Insurance
Scope of Cover Professional Indemnity insurance provides cover for losses which arise out of “breach of professional duties” while acting in professional capacity. Criteria of “Profession” & “Professional capacity” Advanced training Mental or intellectual work Codes of professional responsibilities Containing general ethical rules Not production or sale of commodities “Breach of Professional Duties” can include; Negligent act, error or omission Misstatement of misleading statement Unintentional breach of intellectual property rights Unintentional breach of confidentiality, etc.

13 II. Professional Indemnity Insurance
Typical Professions for Professional Indemnity Cover PI is available for: Traditional Professions – i.e. Medical Professions, Architects, Engineers, Accounting Professions, Lawyers, Real Estate Agents, etc. Newer Businesses or Professions – i.e. Telecommunications, Internet businesses, new media companies, etc. PI typically provides cover for; Mainly bodily injury losses => Doctors, dentists other medical malpractice Mainly losses for faulty or damaged property => Architects Engineers Only pure financial losses => Lawyers / Attorneys Accountants / Auditors Real Estate Agents Insurance intermediaries IT professions, etc...

14 II. Professional Indemnity Insurance
Underwriting Considerations Precondition for cover => precise description of the professional activity of the Insured This is easier if the business is a regulated profession by law (i.e. Lawyers, accountants). Otherwise, the services performed have to be analyzed & evaluated in detail! Annual fee / income (company size) Number of partners & employees (company size) Years in business Qualification / experience of the staff Number of clients / Largest clients list Contact size for an average client Contract conditions, if possible to receive Risk management procedures Claims / loss history

15 II. Professional Indemnity Insurance
Typical Exclusions Claims arising out of: Activities performed beyond the scope of professional services Bodily injury & property damages, unless arising out of professional services Fraud / dishonesty & fidelity Libel & slander Intentional, malicious, criminal or illegal acts Insolvency / bankruptcy Contact / guarantee / warranty (contractual liability) Punitive or exemplary damages Any kind of pollution War & terrorism D&O

16 III. Legal Professions Legal Profession in Turkey
Turkey follows a continental European understanding of the legal profession in which the founding principles of justice include the right of unrestricted defence by a legal profession. In Turkey, lawyers; - are not required to specialize - are free to address “…the resolution of every sort of legal relationship, every legal matter & dispute acc. to principles of justice & equity” - to use their knowledge & expertise in the service of justice & persons “… before all courts, judges, private & public persons, boards & organizations.” Lawyers may give advice on law & legal issues, take active part in court proceedings & negotiate a settlement. Lawyers should be registered with as Bar Association.

17 III. Legal Professions Scope of Work
General Procedure of Legal Advisory Work Start-up => Client submits the case or applies for the legal advisory service Control => Checking conflict of interest: Evaluation of the facts & check of consistency with the success wanted by the client Admittance => Acceptance of the case & Signing of the agreement, detailing the scope of legal service to be provided Advice => Informing the client about the rights & obligations during the legal process to be followed Preparation => Getting prepared for the case & investigation

18 III. Legal Professions PI Exposures
The most hazardous area of practice: Securities Law: Public offering, ADRs, GDRs Mergers & Acquisitions Corporate & Commercial Law Real Estate Conveyancing Family Law Typical PI exposures Failure to know / ascertain deadlines & periods Inadequote discovery / investigation Incorrect legal advice Failure to know / properly apply Law Insufficient knowledge of Court decisions Failure to file document / Lost file, document evidence Procedural mistakes Failure to follow Client’s instructions Failure to obtain concent / inform client

19 III. Legal Professions Claim Examples
Not carrying out all the relevant checks on a residental conveyancing transaction leading to negligent advice with missing key dates Wrong advice on the documentation of a will leads to invalid will with the wrong parties becoming beneficiary Missing of time limit in a lawsuit leads to loss of the case

20 IV. Accounting Professions
Accounting Profession in Turkey Subject to Law numbered 3568 related to "Public Accountancy",, "Certified Public Accountancy", and "Chartered Accountancy", the subject of the profession of “Accountancy" & "Certified Public Accountancy” is defined as: “The subject of the profession of "Accountancy" and “Certified Public Accountancy” is to: (a) keep books, prepare balance sheets, income statements, tax returns, other documents & perform similar works, in acc. with generally accepted accounting principles & the provisions of applicable legislation, (b) establish & improve accounting systems, organize business management, accounting, finance, financial legislation & work related to the application thereof or advise on the preceding matters, (c) carry out examinations, analyses, audits, based on the documents, in the subjects set out the subparagraph above, provide opinions & issue reports on subjects related to financial statements & tax returns, and act as arbitrators, expert witnesses, etc., for enterprises & businesses of real persons & legal entities. Those who perform the works listed above independently of any business are called “Accountants / Certified Public Accountants".”

21 IV. Accounting Professions
Accounting Profession in Turkey Subject to the same law, the subject of the profession of “Chartered Accountancy” is explained as follows: “The subject of the profession of “Chartered Accountancy” is to issue certifications, besides the works set out in previous subparagraphs (b) and (c). Chartered accountants do not keep accounting books, establish or be a partner of accounting offices. Chartered accountants certify the compliance of the financial statements & tax returns of real persons & legal entities or of enterprises & businesses thereof with applicable accounting principles, the provisions of applicable legislation & accounting standards and that they have examined their accounts in accordance with accounting standards.” As Public Accountants & Certified Public Accountants have joint and several liabilities in connection with the tax returns issued thereby, Chartered Accountants are under joint and several liability as to various certifications given thereby. Chartered accountants are liable for the correctness of the certifications given thereby. If any certification given thereby is not correct, they shall be jointly and severally liable, together with the taxpayer, for any loss of taxes & assessed penalties, to the extent of the scope of the certification.

22 IV. Accounting Professions
Scope of Work Usual Area of Practice of Accountants/Auditors Bookkeeping services Preparation of Financial Statements Tax preparation Liquidator of Bankrupt companies Periodical auditing/certification of Publicly Traded companies Other possible services - Higher Exposure Management Consulting Computer/IT Consulting Investment Advisor Legal Services Fiduciary Services International services

23 IV. Accounting Professions
PI Exposures Misinterpretition of internal facts False calculations Belated applicatios & notifications Inconsistent accounting treatments Material errors of audited financial statements Overestimation of receivables or assets Failure to comply with deadlines & periods of tax income declarations False information or advice in general or specific tax matters Non-observance of advantageous tax norms for the client

24 IV. Accounting Professions
Claim Examples Failure to lodge tax returns led to client losing tax repayment and interest. An accountant was asked by the client to consider the accounts of the business he planned to buy. The client's business partner had an accountant who provided the figures. The client went on to buy a share in the business. The business did not do well. The client then claimed against both accountants for providing negligent advice. The claim was later settled and the second accountant paid USD to the client in settlement. Although the first accountant was not found negligent, his defence costs amounted to over USD

25 V. Technical Professions
Scope of Work Scope of an Architect’s Services Pre-design Schematic design Design development Construction documents Bidding & negotiations Construction – contract administration Post-construction  Today, an Architect does not just offer his core services, but takes additional responsibilities such as: + Takeover of investors’ tasks (analysis, quality control, etc.) + Coordination of services performed by others + Action as Contractor / Construction company + Project management from A-Z (Turn-key projects)

26 V. Technical Professions
Scope of Work Scope of an Engineer’s Services Technical analysis Civil engineering / structural design development Civil engineering / syructural construction documents Bidding or negotiation Structural inspection / reports Building analysis / warranty inspections Post-construction  Engineer has normally a much wider range of activities because his professional services are not limited to serve the construction industry, but there is the electrical engineer, mechnical engineer (supportive activities). Especially, the latter carries the exposure equally to the industry he is working for. Ex: Mechanical engineer who services turbines for power plants carries in worst cases the same hazardous exposure of his client!!!

27 V. Technical Professions
PI Exposures The most hazardous area of practice: Construction of Power Plants Construction of Railways, Airports, Harbours & Jetties Construction of Swimming Pools & SPA Environmental expert opinion Nuclear engineering Typical PI Exposures: Faulty design Negligent selection of materials or equipment Negligent soil testing Negligent preparation of plans & specifications Failure in organizing & supervising construction site Breach of contractual duties & obligation Failure to comply with time & cost estimates Failure to comply with specialist’s recommendations (e.g. Engineering, subsurface specifications) Practice beyond scope of professional licence (e.g. Financial advice)

28 V. Technical Professions
One of the biggest PI Exposures => “Design & Construct”!!! Definition: Insured is involved in both design & construction activities for the same construction project Problems: * Risk of wrongful declaration of losses due to faulty workmanship as “design error” Background: Damages to the object (building) itself are covered under Architect’s PI policy but excluded in the Contractor’s TPL policy. * Prior to handling-over, damages to the object (building) itself are no third party losses (=property damages) * Architect is his own supervisor => Conflict of interest!

29 V. Technical Professions
Claim Examples Design Failure – Temperature of new cold storage room at factory consistently too high because of improper design. EUR costs were paid. Inadequate design – Air extraction & temperature control at restaurant failed to work properly. Restaurant was closed for pending repairs. EUR costs were paid. Structural design defect – Incorrect structural calculations contributed to total building failure of a new car park. EUR costs were paid. Wrong calculation leads to building with less space than allowed. Due to missing expert opinion, the base plate of a building is not sufficient.

30 V. Technical Professions
Real Claims Whole building collapse in Shanghai – due to faulty design & unstable soil conditions

31 V. Technical Professions
Real Claims Dutch Soccer Stadium’s Roof Collapsed

32 Questions?

33 Thanks for your attention !!!

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