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Why financial professionals need indemnity insurance
Mandating indemnity insurance is a move that Indonesia can think about once the financial services sector has matured, to provide benefits for professionals, clients and the sector as a whole.
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A representative of Chubb General Insurance Indonesia attends to a customer on May 11, 2020 at the insurance company’s offices in Gading Serpong, Tangerang, Banten. (JP/Dhoni Setiawan)
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ndemnity insurance, often referred to as professional liability insurance, is a crucial safety net for professionals across various fields, including public accountants, actuaries, tax consultants, financial planners and appraisers. It offers protection in cases of error, omission or negligence while delivering services.
The debate over whether Indonesia should mandate indemnity insurance for financial professionals has gained momentum, especially after the enactment of Law No. 4/2023 on Financial Sector Development and Strengthening.
Indemnity insurance, which is also known as errors and omissions insurance, is designed to shield professionals from legal and financial repercussions arising from any mistakes they make or their failure to meet their obligations while serving clients. This type of insurance covers costs related to legal defense, settlements or judgments resulting from claims of professional misconduct or negligence.
There are several reasons why financial professionals need such insurance, including the complex nature of financial services, client trust and accountability and the regulatory landscape. These factors are not specific to Indonesia, but are increasingly evident in the context of the country’s regulatory environment.
Financial professionals here operate in a complex regulatory environment, making them vulnerable to costly lawsuits for minor errors or misjudgment. Indemnity insurance provides financial security, allowing professionals to focus on their work without the fear of personal financial ruin.
Furthermore, clients seeking financial services place their trust and confidence in professionals, so knowing that the professional they are engaging is covered by indemnity insurance can give them reassurance by providing legal recourse in case issues arise. This trust is vital for a thriving financial sector.
Indemnity insurance therefore offers a safety net for both professionals and their clients, ensuring that professionals are financially protected while clients can seek redress.
