The Romero guide to Professional Indemnity Insurance

There are estimated to be over 1.5 million Professional Indemnity Insurance policyholders in the UK. It’s a vital insurance policy that responds to allegations of inadequate advice, service or design by a business.

What is Professional Indemnity Insurance?

Professional Indemnity protects businesses against claims for injury, loss or damage that occur as a result of negligence or incompetence when providing professional advice or services. It is sometimes referred to as ‘PI’ cover, or Professional Liability Insurance. 

In its most basic form, Professional Indemnity is the non-tangible version of Public Liability Insurance. Public Liability cover is intended to respond to physical mistakes that cause damage or injury to an innocent party. Professional Indemnity Insurance responds when the damage or injury is as a result of poor advice, inadequate design or a failure in the service provided by a professional organisation. 

Any professional should be confident in their level of knowledge and experience before providing advice or carrying out a specific service. However, you can’t always meet a client’s expectation. Even spurious claims require expensive legal defence. Let alone the cost of a compensation pay out if your business is found liable. Here are just some examples when Professional Indemnity Insurance could come to the rescue:

• You give incorrect advice
• You make a mistake or error
• A client’s money or goods are lost
• There is an infringement of intellectual property rights
• You make a claim about a person or organisation that damages their reputation 
• You breach confidence by sharing or losing confidential or commercially sensitive information
• A present or former employee act dishonestly or fraudulently

Which sectors are high risk? 

Some types of businesses are required to have Professional Indemnity Insurance by professional bodies. B2B organisations may be required by those who hire them to have adequate Professional Indemnity cover in place too before commencing work. 

The sectors most likely to need Professional Indemnity protection are construction, accountancy, solicitors, surveyors, architects, financial services and other types of consultancy. However, there are over 500 different types of business that purchase Professional Indemnity Insurance. 

Any business that provides knowledge, skills, advice or professional services should consider this type of insurance protection. 

Why do you need Professional Indemnity Insurance? 

Like all insurance policies, you need to prepare for the unexpected. Could your business survive financially if you were hit by large defence costs and compensation payouts? You may have total faith in your employees and trust them completely. But everyone makes mistakes. Some just happen to be bigger than others. If you make an error of judgement or act negligently, you may end up losing your client or another third party a lot of money. They’re entitled to want to recoup that loss. Professional Indemnity Insurance will make sure you’re not left literally paying for your mistakes – your insurer will foot the bill instead. 

Professional Indemnity Insurance claims can be made against individuals or businesses for up to six years after the act of alleged negligence. You must make sure you are continually covered should someone make a claim for a more historic incident. You may choose to swap insurers, but if this is the case it’s important to check your new insurer covers claims made against previous incidents or has a run-off policy to cover you for the six year period. 

Do self-employed workers and contractors need Professional Indemnity Insurance? 

Growth in the self-employed and freelance market has fuelled an increased need for Professional Indemnity Insurance. Self-employed and freelance workers provide advice and services just as large businesses and corporations do. Therefore it’s important they also have Professional Indemnity Insurance in place.

Contractors are likely to be required to have Professional Indemnity Insurance in place before they are awarded a contract. This is to ensure that, if a mistake is made, the contractor has suitable protection in place to cover any financial losses.  

Do I need an aggregate policy or ‘any one claim’?

An aggregate policy will cover you up to the policy limit for all claims made. An ‘any one claim’ policy will cover you up to the policy limit for each individual claim.

‘Any one claim’ is often considered the most comprehensive option, as you will be covered up to the full policy limit per claim. So, for example, let’s say your policy limit is £500,000. You need to make two claims within the year, both totalling around £400,000. With an ‘any one claim’ policy, both claims would be paid out in full, whereas you would only receive a total of £500,000 with an aggregate policy. 

Professional Indemnity and the hard market 

A hard market occurs when there is reduced capacity for cover. This could make it more difficult to get certain types of cover. Hard markets also lead to an impact on policies and pricing. 

The hard market can put businesses in a difficult position if they aren’t able to get the level of cover they need. For example, some businesses and contractors, particularly those in the construction sector, are required to have a certain limit of Professional Indemnity Insurance cover. Some insurers may not offer to cover the full risk, or the premiums may not be financially viable. In this instance, it’s best for businesses to work with a specialist insurance broker. They can help manage your risks and present these risks in the best way. Insurance brokers can also approach the whole market on your behalf, combining the best options for the most competitive price.