Professional Indemnity Insurance
PI insurance is designed to cover professionals against claims for financial loss
What is professional indemnity insurance?
Professional indemnity insurance is a type of business insurance designed to protect professionals against legal claims in the course of their business activities. As a specialist in your subject matter, clients rely upon your skill, knowledge and due diligence to deliver upon the agreed services. If a client then suffers a financial loss as a result of your mistake, error or omission, they may seek financial compensation.
Professional indemnity insurance will cover the legal costs associated with defending a compensation claim and will cover any damages, awards, or settlements. The cover can protect against a breach of professional duty, professional negligence, and breach of contract.
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What’s covered?
Professional indemnity insurance explained
Professionals need to ensure they have sufficient business insurance to guard against claims for financial compensation. Professional indemnity insurance means they can offer their services with the knowledge they have access to legal and financial support. In an increasingly litigious society, if a client feels you haven’t delivered under the terms of your agreed contract or have been negligent, they are more likely to seek financial compensation through the courts.
Better understand professional indemnity insurance and discuss your needs with an expert
We may recommend you complete a proposal form or provide terms on a statement of fact basisWhy do we need professional indemnity insurance?
Contractual obligations
Counterparties may require you to have professional indemnity cover to prove you have the financial means to offer compensation should you breach the terms of your contract. Business insurance is an effective risk management tool, especially if the service provider may not have the financial means to pay future compensation claims.
Risk management
Businesses that offer advice, provide a professional service or handle client data or intellectual property can transfer the risk of expensive litigation and potential claims. A professional indemnity insurance policy can provide a cost-effective solution to managing significant financial risks to your business.
Regulatory requirements
Some industry regulators and/or professional bodies require companies or individuals to hold minimum professional indemnity cover to operate or continue their professional membership. The requirements are enforced to ensure that clients are able to make a legal claim for damages should they suffer a loss.
What's not covered?
Prior claims and known circumstances
Acts that occured before the retroactive date
Claims from outside terrritorial or jurisdictional limits
What other cover is commonly arranged with your PI policy?
Find other more about management liability, cyber insurance, and employment practices liability.
Management liability insurance
Cyber insurance
Employment practices liability
Discuss your professional indemnity insurance needs with an insurance broker
Insurer's policies differ and it's worth making sure that the cover you purchase is appropriate for your business activitiesHow much professional indemnity insurance do we need?
Professional services
The type of professional service you provide to your clients can indicate a higher or lower degree of risk. For example, an accountant that provides a higher degree of tax advice may purchase a higher amount of cover because of the increased exposure to claims.
Industry
The industry in which you provide your services can be indicative of the amount of cover arranged because some are more prone to litigation. For example, law firms and financial advisors are exposure to higher claims and may purchase higher limits.
Legal requirements
It is common practice for counterparties, regulators, and professional bodies to require minimum amounts of professional indemnity cover. This provides assurance that in the event something goes wrong, your clients have the ability to seek compensation.
Contract size
The size of contracts you undertake offer an indication of how much professional indemnity you should consider because an unsatisfied customer may seek to claim the total contract value. However, while you may attempt to limit your liability, a court judgment may award damages over and above.
Legal defence costs
It's worth considering that legal defence expenses are typically about 50% of the total cost of the majority of professional indemnity claims. Protracted claims with multiple parties can take years to settle and unfortunately this means high costs.
Guides and expert tips
Cover explained:
The business insurance will provide financial protection against professional liability risks arising from breach of professional duty:
- Negligence - failure to exercise reasonable skill and care
- Breach of professional duty - failure to meet industry standards
- Breach of contract - failure to deliver upon the agreed terms
- Libel and slander - covers loss of earnings and financial distress
- IP Infringement - unintentionally infringing upon some elses intellectual property
- Breach of confidentiality - data or information is released without the owner's consent
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Frequently asked questions
What professions can you assist with?
We can accommodate a wide range of professions seeking cover, below are just a few:
- Accountants
- Architects
- Consultants
- Creative professionals
- Design and construction
- Engineers
- Financial services
- Healthcare professionals
- Legal professionals
- Management consultants
- Marketing agencies
- Mortgage brokers
- Public relation firms
- Recuitment professionals
- Software companies
- Trainning professionals
How much does professional indemnity insurance cost?
Professional indemnity insurance cost can vary significantly depending upon the services you provide, your size, your experience, the size of your contracts you are party, jurisdictional cover, and claims experience. Policies can start from as little as £332 annually for a limit of £1 million, however premiums can increase into the tens of thousands of pounds. It's also worth remembering that no two policies are the same and it's recommended that your PI cover is tailored to your individual needs.
Can you provide some professional indemnity insurance claim examples?
- An architect specifies inadequate materials for a construction project and a client seeks a claim for compensation for £250,000 to rebuild.
- A software developer accidentally corrupts files on a client’s system and seeks to claim for a financial loss of £700,000.
- An advertising agency releases on online campaign with incorrect information and the client claims £2,000,000 for damage to reputation.
What professional bodies require their members to have professional indemnity insurance?
- ACAA Chartered Accountants
- Architects Registration Board
- Chartered Institute of Tax
- CIMA Management Accountants
- Financial Conduct Authority
- ICAEW Chartered Accountants
- Institute of Financial Accountants
- Royal Institute of Chartered Surveyors
- The Law Society
What does professional indemnity insurance typically exclude?
Cover will typically exclude guarantees, warranties, liquidated damages (promise to pay if a service is not performed), or assume a third party's liability.
It's also worth considering whether your services could ultimately cause bodily injury or property damage - for example heath and safety consultancies should consider cover that does not contain an absolute exclusion.
Different professions may require specific cover tailored to their unique risks. For example, IT consultants might need more extensive coverage for data breaches and cyber liability, while architects and engineers may need coverage that includes the physical impact of their design errors.
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Related articles and guides
Your business will need professional indemnity insurance if you provide a service, advice, consultancy, design, plans or specifications to a client.
Find out what constitutes professional negligence and how you can mitigate the associated risks within your business. Professional negligence refers to a breach of duty by a professional that results in harm or loss to a client or patient.