The market segment for financial loss indemnity insurance for the “free” (unregistered) service sector is very varied. It is commonly referred to with acronym “PI” in English. The terms Errors & Omissions (E&O) and Professional Indemnity (PI) are often used interchangeably.
Because of the wide variety of professions, services and industries represented in the market, the lack of professional regulation and the constant reinvention of the service sector due to general economic developments such as “outsourcing”, it is almost impossible to identify a uniform insurance standard. The growing internationalism of service businesses due to foreign takeovers, the availability of cross-border services or expansion into foreign markets with separate subsidiaries or branch offices have all played their part.
Third-party financial loss insurers offer insurance concepts for many professions, services and sectors. The majority of products are based on general conditions for third-party financial loss insurance, supplemented in each case by specific conditions and risk descriptions appropriate to a given profession or sector. It is possible to supplement the insurance solutions with particular modules, e.g. an office/business liability insurance component, the use of the Internet, or a cyber component (available from a number of innovative insurers). Businesses in the free (non-registered) service sector who purchase third-party financial loss insurance include, typically:
- Media companies (e.g. advertising agencies, publishing houses, etc.)
- IT service providers (e.g. software developers, IT consultants, etc.)
- Corporate consultants and/or interim managers
- Property service providers (e.g. real estate asset managers, property managers, etc.)
At present, FINLEX does not offer any financial loss liability insurance for architects or medical practitioners.
In most cases, insurance contracts are concluded in the form of annual contracts. However, here too (as with registered professions), it may be necessary to arrange individual insurance (“property cover”) for a particular order during the year, e.g. at the behest of the client (and possibly also financed by the client).
What is insured?
The insurance covers the statutory third party liability (under private law) of the policyholder for a breach when performing professional duties. As a rule, only the activity of the policyholder described in the risk description is insured. The amount of the insured sum can always be chosen freely. When choosing the “appropriate” insured amount and any maximisations, it is necessary to consider various criteria, such as the average order volume or the regularly agreed contractual liability limits.
An important submarket, the corporate consulting and interim management sector, has a special feature in the context of companies facing insolvency proceedings or restructuring through out-of-court agreements in particular, whereby, in addition to third-party financial loss insurance for the consulting service, it may be necessary to place supplementary property cover, personal CRO D&O insurance. See: CRO D&O
Who is insured?
It is necessary to differentiate between policyholders. If the insured party is an individual natural person, he/ she is also the policyholder. In the case of legal entities, the policyholder is the company itself. In this case, the employees who work for the company are also insured.
Who provides the insurance?
If one considers the entire third-party financial loss insurance market, it is evident that – with the exception of a small number of providers on the broker and insurer side that mostly offer modern insurance products for a small clientele (self-employed clients with no/few employees) using Internet platforms – there is little development (supposedly necessary adaptation to existing needs on the client side) and even less innovation or movement. Due to the lack of transparency, many clients purchase average products, despite the fact that there are significantly better solutions available, particularly from some of the newer risk carriers on the German market.
The provider market is relatively large. There are about a half dozen serious insurers, which differ greatly in terms of their underwriting policy.