Professional indemnity insurance covers the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual.
This is a rapidly growing market and insurers offer a range of products. This guide provides you with information about professional indemnity insurance so that you can make an informed decision about whether or not you need this cover.
What is professional indemnity insurance?
Professional indemnity insurance is important if your business provides advice to other people or businesses. This type of cover is designed to protect you if you provide clients with incorrect advice which causes them to suffer a financial loss which could result in them taking legal action against you. This type of insurance would cover the legal costs and compensation within the terms and conditions of the policy.
What does professional indemnity insurance cover?
Professional indemnity insurance protects you against claims for loss or damage made by clients or third parties because of the impact of negligent services you provided or negligent advice you offered. Compensation claims can be brought against you even if you provided a service or offered advice for free.
Professional indemnity cover is usually offered on a “claims made” basis. This means that your insurer will only cover you for claims that are brought against you during the term of your policy. If a claim is made against you after your policy has expired – even if the incident occurred while your policy was in place – you will not be covered for that claim. [1]
If you cancel your policy you should consider buying a run-off policy (also called retroactive cover) in case any new claims are brought against you after your policy has expired. New claims can emerge up to six years after an alleged negligent act has occurred.
What does a professional indemnity insurance policy not cover?
A professional indemnity policy does not cover claims covered under another insurance policy, for example: employers’ liability, motor claims, products liability and property claims where the risk is more appropriately covered elsewhere.
A policy will usually exclude bodily injury (covered under public or employers’ liability) and there will be reduced or no cover for war, pollution, or contamination losses.
Each policy will be subject to a financial limit or limit of indemnity which is the maximum the insurer will pay out in the event of a claim. This is usually an “in the aggregate” limit which means the insurer will not pay out any more than the policy limit during the period of insurance although some policies are on an “any one occurrence” limit which means that an insurer could pay out several claims during the policy period up to (but not in excess of) the policy limit.
Do I need to buy professional indemnity insurance?
Several regulated professionals need to buy professional indemnity insurance. These are solicitors, accountants, architects, surveyors, financial advisers and some healthcare professionals.
Historically, professional indemnity insurance was only bought by these groups of professionals but there has been a growing appetite by other businesses for the protection offered by a professional indemnity policy. In some cases there may be a clause in a contract requiring professional indemnity cover to be in place.
Anyone offering professional services should buy professional indemnity insurance. These can include marketing consultants, advertising agencies, recruitment consultants, designers, and so on.
How much professional indemnity insurance do I need?
Unfortunately, there is no simple answer. The amount of cover you need will depend on what you do, any previous claims, and the risks you face as a business as well as how much you want to spend to offset the risk by transferring it to an insurer.
It is often useful to think about the maximum amount of financial damage you could cause – What is the worst thing that could happen? Also, check the contracts you have with clients as this may include a minimum limit of professional indemnity cover.
How much does professional indemnity insurance cost?
This will be determined by the level of cover, your business activities, the geographical location of your clients, the number of employees, your turnover and the historical information held by your insurer.
Often the difference in cost between higher and lower limits is quite small so it is worth exploring different options and making a decision thereafter.
Most policies make you pay an amount towards each claim – the excess. You can sometimes reduce your premium by choosing a higher excess.
Can I change my professional indemnity insurer?
If you change insurer you can buy a run-off policy that will protect you against any new incidents that occurred when you were with the previous insurer, or you can ask your new insurer to cover you for claims relating to prior incidents.
You should check your new insurer’s covers for claims relating to prior incidents or ask about buying run-off cover.
Can you give me an example of a professional indemnity claim?
A claim against you could arise if a client claims that one of your coaching packages steered them in the wrong direction or if they felt it has caused them to suffer a financial loss, perhaps their business does not grow as expected, or a suggested strategy does not glean the results they were expecting and they feel you are at fault. This does not mean that you are at fault but the insurance will help you defend such allegations.
How do I buy professional indemnity insurance?
We partner with a range of insurers who can provide professional indemnity cover for you and your specific requirements. For us to provide you with a quote it’s worth preparing the following information.
- Business description, what you do for your clients
- Turnover / Fee income split by the UK, North America & Canada, Rest of the World
- Number of employees and the relevant qualifications that they might hold
- Details of previous claims
- If you need run-off / Retroactive cover
For further information, please contact me directly at jaimie.quill@blwinsurance.com.