The world of business can be brutal, and it is important to be protected if you run a business or are self-employed and are liable to be sued by clients that you work with. And that is where professional indemnity insurance comes in. Professional indemnity insurance can be the difference between the sinking or the survival of a business.
There are currently estimated to be around 1.5 million professional indemnity policyholders in the UK, with the rise in self-employed and freelance work boosting a steady increase over the last five years. With some of the biggest professional indemnity insurance claims reaching billions, it is easy to see why many businesses see it as imperative to ensure they can work effectively and be rest assured they are covered for a worst-case scenario situation.
But what exactly is professional indemnity insurance?
We are going to take a look at professional indemnity insurance, what it is, what it covers, who needs it, how much cover you may need, and how it differs from other forms of business insurance.
What is professional indemnity insurance?
Professional indemnity insurance – also known as P.I or professional liability insurance – is an insurance policy that is designed to protect business owners, the self-employed, and freelance workers against financial reimbursement claims by clients who believe the service to be inadequate. A disagreement between a professional and their client can lead to legal costs, compensation claims, or other payments, and professional indemnity insurance covers you against those costs.
Any individual or organisation that provides a professional service is liable to be sued if the client is unhappy with their work. So although professional indemnity insurance is not a legal obligation, it is recommended that you have it if you provide such services.
So let’s jump in and take a look at what professional indemnity insurance covers.
What does professional indemnity insurance cover?
Professional indemnity insurance provides cover for claims made by third parties and clients as a result of negligent services you provided or advice you offered.
Professional indemnity insurance can provide up to millions (or even billions) of pounds to cover legal fees and compensation costs. If you or your business make a big error – or are accused of making a big error – professional indemnity insurance can be crucial to ensuring that you are not sunk by the subsequent proceedings.
Professional indemnity insurance only covers events that have occurred since you’ve held such a policy.
Amongst other things, professional indemnity insurance can cover:
- Bodily injury. If an injury is caused to a third party by your negligence while performing your professional duties, then professional indemnity insurance covers financial loss, personal injury, and property damage resulting from your negligence. An injury in your workplace to a non-employee caused by happenstance rather than negligence would need to be covered by public liability insurance.
- Consequential loss. Most professional indemnity insurance policies cover consequential financial loss by your client or customer that is due to your mistake or negligence. Check with your provider beforehand, as not all policies include this cover.
- Defamation. Professional indemnity insurance usually covers unintentional defamation. Defamation is anything written or spoken that is harmful to someone’s reputation and can be proven to be false.
- Confidentiality breaches. Professional indemnity insurance can cover breaches of confidentiality and the subsequent legal proceedings.
- Intellectual property. If another business claims that your work is too similar to theirs, professional indemnity insurance can cover you if they opt to take their claims to court.
When choosing professional indemnity insurance, it is advisable to approach a broker that can liaise with multiple providers to find the right cover for you. Every industry and business is different, and it is important to have a policy that is tailored to the specific demands in your line of work.
Who needs professional indemnity insurance?
Although most professionals are advised to get professional indemnity insurance, there are some industries and sectors that are more likely to need it than others.
Professional indemnity insurance should be a priority if:
- You or your business provides direct professional services, advice, or consultancy to clients.
- Your business is liable for disputes over the quality of service.
- Your business is liable for disputes over copyright issues.
- Your business is open to claims of professional negligence.
- You or your business have access to confidential information.
Some industries, such as accounting, consultancy, surveying, engineering, and healthcare, often need professional indemnity insurance due to the requirements of their professional bodies.
Is professional indemnity insurance a legal requirement?
Professional indemnity insurance is not a legal requirement in the UK. The only insurance that some businesses are legally required to have is employers liability insurance, which is relevant for all businesses that hire one or more employees.
Although professional indemnity insurance is not a legal requirement, it is highly recommended that you get a policy if your line of work is likely to be sued for negligent services.
How much does professional indemnity insurance cost?
The overall cost of professional indemnity insurance will depend on a variety of factors, including your excess, claim limit, claim history, industry, size of business, the equipment necessary for your work, and your location, amongst other factors.
Some policies start at under £10 per month, while others are in the thousands. As we saw already, there are some professional indemnity claims for big companies that reach billions of pounds, so it is understandable that there is a wide range of prices for different levels of cover.
Before making a decision on professional indemnity insurance, be sure to approach a number of providers so that you can compare quotes before making a decision. The best way to do this is to approach an insurance broker who can find tailored policies to suit your specific requirements.
What level of cover do I need?
The level of professional indemnity cover you need depends largely on your line of work and the clients you engage with. For example, if you work in a heavily regulated industry, then you should opt for more professional indemnity cover.
When choosing the level of cover you need, consider a worst-case scenario, including legal fees and compensation payments, and then opt for whatever amount would cover that bill. Although this is (hopefully) unlikely to happen, it is always best to be covered for the worst possible situation so you can rest assured knowing you will survive such a scenario.
You should also consider your cash flow and staffing capacities. Are both sufficient to rectify major errors? If not, then you should opt for more professional indemnity cover.
You can also ask your clients directly how much compensation they would expect. Though you should be careful apart putting this into a contract as breaches of contract are usually not covered by professional indemnity insurance.
Most insurers should let you build your own policy to suit the specific requirements of your business. It is important that you are honest and transparent with your provider so that you can find the exact level of cover that you need.
What is the difference between professional indemnity and public liability insurance?
Public liability insurance covers businesses against claims made by members of the public due to injury, illness, or damage as a result of that business’ work.
Professional indemnity insurance covers claims made by clients for professional mistakes or negligence. It does not cover claims made by members of the public.
Some businesses might opt for both professional indemnity and public liability cover, though neither is a legal requirement.
What is the difference between professional indemnity insurance and employers’ liability cover?
Employers’ liability cover is a legal obligation for any business that employs one or more members of staff, even if it is only on a casual basis. Employers’ liability cover insures both employees and employers against any accidents or injury that may be caused as a result of the workplace conditions.
So employer liability insurance is for claims of negligence that are made within a business, whereas professional indemnity is for claims of negligence made by clients outside of the business.
Moreover, as we have already seen, professional indemnity insurance is not a legal obligation, but employers’ liability is.
What is the difference between professional indemnity insurance and product liability cover?
Product liability cover protects you against the cost of personal injury, damage, or illness caused by your product. It is usually required due to the result of a faulty product.
This differs from professional indemnity insurance as it covers damages caused by the product rather than negligence or mistakes in the professional work itself.
How to reduce the cost of your professional indemnity insurance
Reducing the cost of your professional indemnity insurance is trickier than it is for other types of insurance, but there are still a number of things you can do to bring the price down.
Make a good first impression
When you fill in your initial proposal form, it will be reviewed by an underwriter, and they will also assess your business’ wider profile. Make sure that your website is up to date and well maintained and that any business finances that are available online are in order. Also, be sure to complete the proposal form accurately as these small differences can all make a wider impression.
Raise your excess
Every insurance policy comes with an excess, which is the amount that you will pay before making a claim from your insurance provider. If you voluntarily raise your excess, the cost of your premium will reduce. However, make sure that you are able to afford the new excess rate before setting it too high.
Detail any risk management strategies you have in place
If you have risk management strategies in place and you spend time and money on ensuring the quality of your business’ output, then make sure your insurance provider is aware of this.
If you don’t yet have any risk management strategies in place, then consider starting some. This might include employee training, regular feedback from clients, or employing a third party adjudicator. Be sure to tell your insurer as soon as you have set up any new strategies.
Get the right level of cover
Although there are greater perils to being underinsured, many businesses find that they are overinsured beyond their necessary requirements.
Make sure you find a policy that is tailored to the specific needs of your business and that you review your cover every year so that you can adjust your levels as necessary.
Meet your provider
You will have an underwriter working for your insurance provider who looks after your business. Building up good relationships over time with these people can be a good way to make sure they trust you and your business and offer better deals based on that rapport.
There are countless insurers out there who offer professional indemnity insurance. Be sure to shop around and get multiple quotes before making any decisions. You should also work with a broker to get the best deals as they have built up long-standing relationships with insurers, and they can find great policies that are tailored to your specific needs.
You can also then use competitors’ quotes to try and bargain new deals with other providers.
Having a good professional indemnity policy can be the saviour of many businesses. It is always best to plan for a worst-case scenario event so that you can rest assured knowing that your business will continue if such an event should occur.
A-Plan’s professional indemnity insurance is tailored to the unique needs of your business and can provide the exact cover you need to ensure that you can continue to operate come what may.