Is having professional insurance or surety bond necessary and why is it important?
In the complex economy of our time that requires many different skills and expertise, outsourcing the tasks that used to be done mainly in-house becomes the norm because it can reduce production cost, financial-wise. The company that choose outsourcing do not need to hire another full-time worker or professional that entails employer’s commitment such as medical benefits, paid maternity or paternity leaves, loans, etc.
If you are looking for a corporate or personal insurance provider, you should consider Allegiance Associates. They cover a wide range of professional insurance in Singapore. You should check out their site above.
The risk of outsourcing however, exists. The contractors who provide professional services may fail to fulfill the contract to the fullest, causing financial loss to the companies which use their services. Due to the potential risks involved every time this kind of transactions happen, the role of professional insurance or surety is very important to protect all parties. Several types of professional insurance are available in the market, depending on the needs of the parties.
An article on Insureon website gives good explanation about the importance of professional liability insurance.
Having professional insurance demonstrates positive aspects of business
There’s always a risk that you or an employee could make a mistake in your work — or at the very least, be wrongfully accused of making one! That’s why larger business partners might require you to carry Professional Liability Insurance before they sign a contract with you. A Professional Liability Insurance policy signals to your potential clients that you have their interests in mind and that you handle your business responsibly.
It can also give you a professional advantage over competitors who don’t have coverage. You can bid for projects your competitors can’t handle or advertise a benefit your competitors can’t provide. Read more here!
If you are a company looking for outsourcers to do some professional works or to provide skillful tasks or consultancy that involve potential financial loss if it fails in any way, it is good to look for contractors that have professional liability insurance coverage. This is to ensure that the contractors can pay for the losses that you suffered due to their negligence, omission or advice that produce wrong results. In cases of lawsuits, even if you win, the contractors without coverage might not be in good financial standing to pay for the damages the court award to you.
On the other hand, if you are the contractor who is in the position to enter a contract as a service provider, having professional liability insurance demonstrates how far you are willing to protect your customers and their interests. Your concerns about your responsibility will resonate well with potential clients and brings more businesses. While some industries are stricter in giving out contracts only to those providers with insurance coverage. So, your business opportunities expand, too.
Let’s see what are the reasons that might lead to risk of litigation in professional settings, written by Mike Ang at Aon.
Protect your company from expensive lawsuits
Risk of litigation comes from many sources, including:
- Failure to perform to the required standards
- Inadvertent error (even at junior levels) or the unintended consequences of seeming appropriate advice
- The failure to adhere to accepted “prior” or “post” procedural protocols leading to potentially serious claims or law suits against professional service firms. Read more here!
For example, your business is providing service of building e-commerce platform that includes secure payment gateway. You have delivered the website and your client is very happy with it. But one day, the secured payment gateway got hacked and the client had some considerable loss caused by the incident. He decided to sue you.
Without coverage of insurance for your professional services, you might find it challenging without a safety net to fall on. Lawsuits usually cost a lot of money, especially if it is dragged for long months or even years before settlement. If you win, it will be a great relief, but what if it the other way around. You will need to prepare for days like this because doing business always involve some risks, high or low.
Looking to buy insurance only when the need arise is not a wise decision, because the insurance company can end up denying your insurance claim.
If you are not into insurance, another option to consider is the surety bond. Charles Seiler shares the detail on Savannah Now.
Surety bond is another option to consider
A surety bond is a contract involving three parties: the person or entity performing the service (principal), the person or entity for whom the service is performed (obligee) and the entity that guarantees the principal will perform as agreed (surety). In the event of a loss or failure to perform, the surety bond pays the obligee, not the principal.
Surety bonds work more like credit than insurance.
Insurance is an agreement between two parties where the entity paying the premium receives the benefit in the event of a loss.
Surety bonding consists of two types: commercial and contract surety bonds. Commercial surety bonds, in most cases, are easier to obtain as they typically require only a signed application and current financial statement. Read more here!
If you do not want to pledge for long term payment of insurance premium, surety bond is easier to obtain because financial statement will be enough as supporting document. In the event of any loss, the surety will act as a guarantor to ensure the contractor who provide service will pay for any failure in performing promised tasks. Put ourselves in the client’s shoes; if there are two contractors, one with surety bonds and another without, with same good track record in giving service, why not choose the one that can pledge more financial responsibility.
Knowing all these, it is very easy to conclude the importance of having professional liability insurance or surety bonds that can cover the interests of both parties, either the client or the contractor. Although it is not a necessity, it is necessary in certain situations to have this kind of safety net. Reap the benefits that this financial security can offer – the confidence to enter any contracts knowing both sides are properly protected.