When is Professional Indemnity Insurance Required For Business?

At a Glance

• Professional Indemnity insurance is a legal or regulatory requirement for certain professions in Australia, including financial advisers and mortgage brokers.

• Clients and project owners across commercial, corporate and government sectors frequently require proof of PI insurance before an engagement can proceed.

• Some professional associations and industry bodies make PI cover a condition of membership or the right to use a professional designation.

• Even where no formal requirement exists, advice-based work can carry the same exposure to claims as regulated professions.

Imagine you're shortlisted for a new contract. The scope suits your experience, the client seems like a great fit, and then, before anything is signed, you're asked to provide proof of Professional Indemnity (PI) insurance. You either have it, or you don't.

For many professionals, that's the first time they've seriously considered Professional Indemnity cover. By then, the decision has already been made for them.

PI insurance is generally required in three distinct situations: by law or regulation, by clients and contracts, and by professional associations. There is also a fourth situation in which no formal requirement applies, but exposure to claims remains the same. 

Understanding each of these helps you work out where your own obligations sit and whether cover is already expected of you. 

Licensed Professions and Regulatory Requirements

For certain professions in Australia, Professional Indemnity insurance is a legal requirement for holding a licence or registration. It is not optional.

Professions with a mandatory PI requirement include:

• Financial advisers operating under Australian Financial Services (AFS) licensing frameworks are generally required to maintain adequate PI insurance arrangements under Section 912B of the Corporations Act 2001.

• Mortgage brokers operating under an Australian Credit Licence (ACL) are similarly required to hold adequate PI insurance under ASIC's regulatory requirements.

• Migration agents registered with the Office of the Migration Agents Registration Authority (OMARA) must hold PI insurance as a condition of registration under the Migration Agents Code of Conduct.

• Registered health practitioners regulated by the Australian Health Practitioner Regulation Agency (AHPRA) are required to maintain appropriate PI arrangements as part of their registration obligations under the Health Practitioner Regulation National Law.

These requirements are most common in professions where advice or services can directly affect a client's financial position, legal rights or health outcomes. In these fields, operating without appropriate PI cover may put your licence or registration at risk.

Contractual Requirements From Clients and Project Owners

Outside regulated professions, Professional Indemnity insurance is frequently required by contract. Clients and project owners across commercial, corporate and government sectors regularly include PI insurance conditions in their engagement terms.

Contractual PI requirements can take several forms:

• A specified minimum cover limit 

• A certificate of currency requirement before work begins

• Ongoing insurance obligations that continue for the duration of the project

Clients may ask for these because they want confidence that if professional services result in financial loss, a policy is in place to respond to a covered claim.

Without a PI cover in place, you may be excluded from a contract or tender regardless of your qualifications or experience. 

This is particularly common in government procurement and large commercial projects, where insurance requirements are often verified before work begins.

Industry Body and Professional Association Requirements

Some professional associations make Professional Indemnity insurance a condition of maintaining certain credentials or practising rights. 

Examples include:

• Certified Practising Accountants (CPA) Australia requires members providing public accounting services to have appropriate Professional Indemnity insurance under By-Law 9.8. 

• Chartered Accountants Australia and New Zealand (CA ANZ) similarly requires minimum PI cover for members holding a Certificate of Public Practice under its Professional Standards Scheme. 

These requirements sit independently of what any client or regulator may ask for. 

Depending on the profession, allowing PI cover to lapse may affect your ability to maintain professional credentials or practising rights.

Professional designations are often viewed by clients as a signal of quality and trust. Losing those credentials can affect how clients engage with you, even when your skills and experience remain unchanged. 

The Nature of the Work Itself

The three situations above involve formal requirements from external parties. But there is a fourth situation that involves no formal requirement at all.

If the work involves giving advice, preparing reports, developing strategies or making recommendations that a client uses to make decisions, there is potential for a PI claim regardless of whether anyone required you to hold a policy. A client who suffers financial loss and attributes it to your advice can raise a claim either way. This is particularly relevant for sole traders, freelancers and consultants without a specific regulatory requirement. The absence of a formal requirement does not reduce the exposure, and in the event of a claim, the costs of responding can be high whether or not PI cover is in place. 

PI insurance is a legal requirement for some professions, a contractual requirement in many engagements, a membership condition for certain professional bodies and a practical consideration for professionals whose work carries exposure regardless of whether it is formally required.

The right time to hold a policy is before a contract requires it or a claim arises. Considering PI cover in advance, rather than in response to a specific trigger, puts professionals in a stronger position to take on work, meet client expectations and manage the risks that come with advice-based work. 

Providers such as Sami Insurance offer PI cover tailored to specific occupations, with online quotes available for professionals across more than 800 professions.