Professional indemnity (PI) insurance is often a mandatory requirement for many professionals, yet the importance of this cover is often misunderstood. Not all PI insurance is the same, that’s why it’s important to work with an experienced PI insurance broker to make sure you’re adequately protected. We’re exploring some of the common questions our clients have about PI insurance, explaining what it is, and how it protects you.
What is professional indemnity insurance?
Suppose you're responsible for causing financial loss to your client because of errors or omissions in the advice or designs you have provided. In that case, your PI insurance policy covers the legal costs and expenses involved in defending a claim and compensation payable.
What does professional indemnity insurance cover?
PI insurance coverage depends entirely on your policy, so you'll need to ensure it provides adequate cover for the professional services you provide and the risks you may face. For example, this could include:
- Civil liability (such as damages and costs) for breach of duty.
- Legal fees and expenses in defending a claim.
- Helplines to help you manage risks.
- Relevant regulatory body requirements.
Not all PI insurance policies are the same, and we always advise you work with an experienced PI insurance broker to ensure you have the cover you need.
Who needs professional indemnity insurance?
For some professionals, PI insurance is deemed mandatory by their regulatory bodies. Examples include accountants, architects, independent financial advisers (IFAs), solicitors and surveyors. For other professionals, having PI insurance in place may be part of a contractual obligation.
Many choose this cover because of the protection and security it provides if their advice or service fails to meet a client's expectations. Having PI insurance in place can also play a key role in securing new clients and reassuring your existing ones.
Do I need professional indemnity insurance?
While you strive to deliver the best service to your clients, occasionally mistakes can happen. PI insurance protects you and your business if your client alleges a financial loss for:
- A breach of a professional duty of care or unintentional breach of contract.
- Unintentional breach of confidentiality and copyright.
- Loss of documents or data.
There are professions, such as accountants and surveyors, that must have PI insurance in place in order to conduct their business. This is a mandatory condition required by their regulatory bodies.
How much professional indemnity insurance do I need?
Every business is different, and there isn't a one-size-fits-all PI insurance policy. We always advise working with a broker who has experience of arranging PI.
If you work in a regulated profession, like accountancy, your regulatory body will specify minimum levels of cover. For example, ACCA accountants with income up to £200,000 need a PI limit that is greater than 2.5 x their total income and 25 x the largest fee.
Royal Institution of Chartered Surveyors (RICS) requires their members to only use approved insurers and if your turnover is £200,001 and above then you’ll need a minimum cover of £1 million.
Often, specified levels of PI insurance cover and limits may be written into client contracts, so your broker may ask you for this information. As a professional and expert in your field, you do your best to limit your liability. However, it’s very difficult to predict if a client will make a claim. In many cases, professionals will opt for higher limits for peace of mind and protection should a claim cost them more than they anticipate.
When is professional indemnity insurance required?
Let's take a look at professional indemnity insurance in action. Here’s an example of how PI insurance could respond when faced with a claim.
A freelance architect was suddenly facing a claim for allegedly delivering inadequate work that resulted in the client experiencing a significant financial loss.
While every effort was made to ensure the project ran smoothly and without any errors, the project did run into difficulty. Fortunately, the architect had taken out a professional indemnity policy. This gave the architect peace of mind knowing any compensation payments that needed paying were covered, along with legal costs and associated expenses.
On further examination of the claim, it came to light that the issues experienced in the project weren't the sole responsibility and fault of the architect. The architect accepted some liability for the problems that arose. The case was resolved swiftly and for significantly less than the client had initially claimed.
A professional indemnity insurance policy responds if a client alleges that you’ve caused them financial loss due to errors or omissions in the services you’ve provided. Your policy should cover the legal costs and expenses involved in defending a claim as well as compensation payable.
How much is professional indemnity insurance?
The cost of PI insurance will vary from business to business. The insurer will consider many factors, including:
- The level and type of covers required.
- Number of employees.
- Annual turnover.
- Risks associated with your industry.
- Your activities (some might be higher risk than others).
Because of these variables, there’s no average premium. Professionals such as insurance brokers, independent financial advisers (IFAs), solicitors and surveyors should expect to pay a higher premium for their PI insurance. This is because insurers consider their business activities higher risk and more complex.
What should I look for when choosing a professional indemnity insurance provider?
Many providers offer PI insurance, but it's important to carefully select a provider that can meet your business needs. Some key considerations to keep in mind when choosing a provider include:
- Can the policy be tailored to suit your business?
Some professions require specific protection or covers. You may avoid paying an additional premium for cover you don't need if the policy is tailored to your business.
- Does the provider understand your business?
We recommend working with a broker with expertise and experience in PI insurance. It’s important your insurance broker is familiar with professional services and understands the complexity of the risks involved in your business activities. Working with a PI specialist will help ensure you have the right level of protection in place and that you only paying for the cover you need.
- Is there an option to pay by monthly payments?
Sometimes it’s possible to pay your premium in instalments. This is an excellent option for new or small businesses that are still wary of cash flow, or want to spread the premium cost throughout the year to help better manage their cash flow.
- Does the provider have a good reputation?
It's always advisable to do your research when choosing a PI provider. Using a broker with expertise in PI will help you find a reputable insurance provider, giving you confidence that claims will be dealt with efficiently and paid out if necessary.
- Does the provider offer the cover you need?
PI insurance covers can vary between civil, legal or negligence which makes a difference when it comes to paying out the claim. Policy limits can refer to the amount payable for a single claim or it could be an aggregate amount. Aggregate means that the total amount of financial cover provided is limited to the amount specified in the policy schedule, arising within the specified period of insurance. Some insurers would apply specific exclusions in the wording or as endorsements which are not easily spotted. Using a broker would help assure your policy is right for your business and adequately covers your business activities.
Our team of PI insurance experts is here to help. For more information, contact them by email or on 0330 1623 862.