For the professional classes of insurance (PI, D&O etc) we frequently get asked this question.  There is no perfect answer but for our clients we have a process that considers over 16 factors which influence the source and/or quantum of claim.  We have listed 5 below:

1. Legal requirement. As a first step, what is the minimum limit required by law as an AFSL holder.

2. Number and complexity of mandates. The more clients/mandates the more exposure. The larger FUM then theoretically the more money can be ‘lost’, which has an impact on size of claim. The more complex the mandate the more likely there could be a error.

3. Staff: the number of staff (sufficient to manage workload, especially as business grows), quality of staff (more experienced the better), longevity of staff (turnover may be an indicator of issues).

4. Culture.  A business can have all the compliance processes and procedures in place, but if there is a culture of ‘getting the job done’ irrespective of compliance and risk management, then the likelihood of a claim increases.

5. Cost. Ultimately, the value in purchasing additional limit of indemnity needs to be weighed up against the additional premium cost to purchase the limit.

Sitting with your Broker to work your way through some of these factors can assist in the discussion on limit of indemnity.