Insights & Resources

Indemnities versus Insurances: Do you understand the difference?

Indemnity v Insurance Meaning

Indemnities and insurance both guard against financial losses and aim to restore a party to the financial status they held before the event occurred. However, it’s important that Contract Managers understand the significant difference between the two to help protect their business.

Indemnities

Indemnities are used in commercial contracts to allocate risk between contracting parties, generally by altering the common law or statutory rights of the parties, with one party accepting some or all of the risk of loss that the other party may suffer in a given situation.

There are six common types of indemnity clauses:

  1. Bare indemnities: Organisation indemnifies the supplier for all liabilities or losses incurred in connection with specified events without specific limitations
  2. Limited indemnities: Organisation indemnifies the supplier against losses except where they are incurred as a result of the supplier’s own actions
  3. Reverse indemnities: Organisation indemnifies the supplier against losses incurred as a result of the supplier’s own actions
  4. Party/party indemnities: Organisation and the supplier indemnify each other for losses caused by the indemnifier’s breach of contract
  5. Third party indemnities: Organisation indemnifies the supplier against claims by a third party
  6. Financing indemnities: Organisation indemnifies the supplier against losses incurred if a third party fails to honour the financial obligation to the supplier

Insurances

People are generally more familiar with the concept of insurance. An insurance policy transfers a risk from one party to another in exchange for payment. It guards the insured party against any losses for the insured risk. Business insurance generally focuses on assets, revenue, liabilities and personnel, with many products designed to meet the needs of specific industries.

If you agree to an indemnity clause, it’s a good idea to investigate if there is insurance coverage available for the risks likely to be covered by the clause.

In any case be aware that a transfer of risk will always come with a price tag.

At a glance

  • indemnities and insurance both guard against financial losses
  • indemnities are used to allocate risk between contracting parties, generally by altering the common law or statutory rights of the parties
  • an insurance policy transfers a risk from one party to another in exchange for payment

The three keys to procurement driven cost reduction and performance improvement

A game changing guide for modern (next generation) procurement professionals.

Being able to influence the business on how to use all available procurement levers, not just aggregation and tendering, is critical to drive the next wave of procurement savings and benefits for your business.

Great in theory but how can we as a profession effect significant change to such a well-entrenched and established way of working?

Perhaps the first and most important step is to think differently and not be afraid to question conventional thought.

In this guide we introduce to you three game changing ways of viewing and approaching existing business problems, namely:

  1. Getting performance from suppliers is the same as getting performance from staff
  2. Tenders no longer generate savings – you have to pull all four spend levers
  3. Procurement must become a trusted internal advisory team

This is not just theory, from our research of more than 250 Australian organisations we know that turning the ship around to better source and manage suppliers leads to an increase in performance of 29 percent!

Download your copy where we turn the world of procurement on its head, challenge the status quo and share our insights for dramatic supplier performance improvement.

DOWNLOAD YOUR FREE COPY