Professional Indemnity Insurance
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Why have professional indemnity insurance for business?
Professional Indemnity Insurance – also referred to as PI Insurance and used by businesses – is cover for self-employed individuals or small companies such as architecture firms, accountants, journalists, engineers and financial advisers etc. Individuals working for these companies offer professional advice and expertise to other companies and/or individuals.
Professional indemnity insurance can also be helpful to companies which are privy to private third-party information such as data or intellectual property (e.g. corporate lawyers). That’s because it can cover them if a client claims they have lost money and time as a result of what they consider the professional individual’s negligence and poor practice.
In the event such a professional was sued and lost, the costs would be astronomical and probably enough to force them to close down their business for good. They may also be forced to sell their home. In other words, the damage done could be more than just financial; family relationships could come under strain too.
And certainly, these type of claims are on the rise, thanks to the flourishing ‘blame and claim culture’ which is spreading from across the Atlantic.
What does it cover?
With professional indemnity insurance, the person defending the claim of negligence, defamation etc would have the cost of compensation to the client covered, together with that client’s loss of earnings, future loss and however much it will cost to repair whatever has been done that the client has sued for in the first place.
Damages and legal costs would also be covered. Even if the professional is judged to the be in the right and the client’s claim thrown out by the court, the person being sued could still have thousands of pounds of legal costs to fund in order to defend himself in the first place.
The type of claims against a company could involve a confidentiality breach, negligence, loss of data or documents, defamation, a dispute over intellectual property and even dishonesty.
The amount of coverage necessary for a company depends on the risks involved (e.g. a journalist would have a higher risk of defamation than other professionals) and the type of clients you deal with. Usually, the amount of cover can be quite wide-ranging, starting at £50,000 all the way up to £10m.
Meanwhile, insurers will calculate the amount of cover necessary on the type of business you have, including the number of employees in it, as well as the turnover and if you’ve been subject to similar claims in the past.
Different types of professional indemnity insurance
Employers’ liability insurance: A legal requirement for companies who employ at least one other member of staff, this type of insurance policy protects staff in the event they have an accident or become ill at (or through) their work. It’s viewed as a necessary adjunct to health and safety guidance in the workplace.
Public liability cover: Unlike employers’ liability insurance this isn’t a legal requirement in the UK, but it could prove the difference between the business folding or staying afloat in the event of a negligence etc claim from a third party client or an individual/company.
Tips on getting the best value insurance
- Always try and give as good an impression of your business as possible. That means, when you fill in your application process, ensure there are no spelling mistakes, the grammar is good and, if there is handwriting on the form, that it’s legible.
- Extend this accuracy to your company brochures and the website I order to emphasise how professional the firm is.
- Include a quote from the director of the company at the beginning of the quote form. This not only looks very professional but also sets a nice tone.
- Always give full details about any risk management procedures your company has undertaken.
- Detail what happened in a previous claim and add what action you took to avoid a re-occurrence or similar claim taking place in the future.
- Approach your current insurance company several months before your current premium is up to help them find the best premiums for you for the following year.
- Take the time to meet up with the appropriate individual from your insurance company. Face-to-face introductions and meetings always bode better for future business negotiations.
How do I know if I need professional indemnity insurance?
This isn’t a legal requirement, but it is advisable for businesses who give out advice (financial advisers), contractors, knowledge (lawyers) or skills (engineers). Some individuals are made to take out professional indemnity insurance if they want to join a professional body. Then again, their industry could dictate it. In certain circumstances, a client’s contract could also insist on it.
What does aggregate limit of identity mean?
This is the type of limit of the policy. In the case of an aggregate limit, it means that the amount of insurance cover (e.g. £200,000) is limited to the amount of the individual or accumulated claims outlined in the policy and within the identified time period.
How does this compare to an ‘anyone claim’ policy.
In this instance, up to £200,000 could be paid out in any one individual claim and there could be two such claims.
What other types of professionals could benefit from professional indemnity insurance?
IT workers regularly advise clients on the workings of their computer and on software issues. If anything goes wrong with their client’s equipment it could prove extremely costly. Freelance writers, marketers and business consultants could also benefit from professional indemnity insurance.
I have a client who is insisting I take out professional indemnity insurance – yet the contract with him is only for six months. Is it worth it for such a short time period?
Yes, because even if the contract finished after six months, any claims relating to the work which are lodged after that time period, will still be covered by insurance.