Professional indemnity insurance is used to protect certain businesses which provide professional services or give advice to customers.
These include financial advisers, solicitors, and accountants and this type of cover is used if one of these firms is sued by a client or customer.
It can cover the cost of legal fees or compensation if a business is accused of being negligent or giving advice that leads to a financial loss for a client.
This insurance can provide useful protection but not all businesses need it. In this article, we look at how professional indemnity insurance works, why you might need it, how much coverage to get, and where to buy it.
How does professional indemnity insurance work?
If you have professional indemnity insurance, it can provide cover if one of your customers sues you because they say you gave them incorrect advice or that your services meant they had a financial loss.
It covers a huge range of scenarios but usually, it will be for companies who provide advice or designs such as surveyors or architects.
If a customer or client decides to sue you, you can use this type of insurance to cover the costs. They may believe you have caused them a financial loss and decide to take you to court.
It can cover legal costs, which can often run into tens of thousands of pounds, and any compensation you may be required to pay out.
You can usually buy professional indemnity insurance for future work but also for any work you’ve already carried out. If you supplied advice, for example, to a client a few years ago and they now claim it has led to a financial loss, if your cover included previous work you’ve carried out, you could use it.
Which businesses need it?
Any type of business can buy professional indemnity insurance, but it’s usually only required by those offering advice, specifications, or designs. These include advertising and design agencies, public relations firms and consultancies.
It can be used by those who work for companies, or for self-employed workers too.
If you work in one of the following professions, you will need this type of cover to join a professional body or regulator:
- Accountant
- Architect
- Chartered surveyor
- Financial adviser
- Health and safety healthcare professionals
- Solicitor
Do I need professional indemnity insurance?
If you work for one of the professions listed above, you will need to buy professional indemnity insurance. This is because to be a member of a regulator or trade body, such as the Royal Institution of Chartered Surveyors, you will need to show that you have this type of cover in place.
You may already be covered by this insurance if you’re working for a company – if they have a policy in place. But if not you can buy it, either for your company or for your own business if you’re self-employed.
Is professional indemnity insurance required by law?
Professional indemnity insurance is not required by law but if you want to join a chartered body you may need it.
Most of the leading organisations and regulators require companies to have it in place.
It is also a useful policy to have in place and could save you hundreds, or thousands, of pounds if you are sued by a customer. Legal fees and compensation can be extremely costly to a business and professional indemnity insurance can cover these.
You can choose how much coverage you need but most policies provide cover of £10 million or more for these costs.
What is the difference between professional indemnity and public liability?
Professional indemnity insurance and public liability insurance work in a similar way. They are both insurance policies that can cover the cost of legal fees and compensation.
Public liability insurance, however, is used to cover claims made by members of the public. This is usually if someone is injured or becomes ill and they decide to sue the company they think is responsible. While professional indemnity is for clients or customers who sue a company they have used.
How much cover do I need?
The level of cover you need for your business will depend on its size and type. It can also protect any past work you’ve done so the amount of cover you need will also depend on how long you’ve been established for and how many customers you’ve already had.
Most policies can be tailored to individual businesses, such as public relations or recruitment, so they offer the appropriate type of cover.
A few things to think about when looking at the amount of cover you need include:
- The size of your business
- How many customers do you have
- How long you’ve been operating for
- The volume of work you provide
- How much equipment you use
What is not covered by professional indemnity insurance?
As with any type of insurance policy, not everything will be covered. What is included with your insurance will be listed in the policy documents, so it’s well worth looking at these when they’re sent to you.
Some of the most common things not included with this type of insurance are:
- Claims were made when the policy wasn’t in place. Unless you have a policy that covers previous work you’ve carried out, you won’t be able to use it if someone makes a claim about something that you’ve done in the past.
- Claims by employees are not covered, just those from clients or customers. For employee claims, you will need employer’s liability insurance.
- Claims by members of the public can’t be covered with this insurance. Instead, you will need public liability insurance
What does professional indemnity insurance cost?
The cost of professional indemnity insurance depends on the policy you buy, and the insurer you choose. Lots of insurers offer this type of cover so it’s important to shop around to find the right type of insurance for you and your business.
The amount you pay for a policy will also depend on the following things:
- The size of your business
- The kind of work your firm provides
- Your annual turnover
- The excess you agree to pay
- Any extras you include
Where can I buy professional indemnity insurance?
There are several insurers who offer professional indemnity insurance such as AXA and Hiscox. Most insurers offer a standard policy and also those which are tailored to individual businesses.
You can buy a policy directly from an insurer or you can use a broker. The British Insurance Brokers’ Association (BIBA) has a list of brokers you can contact.
