Professional Indemnity Insurance FAQs
What does professional indemnity insurance do?
Professional Indemnity insurance protects professional businesses against their legal liability towards third parties for injury, loss, or damage arising from their professional negligence or that of their employees.
Why is professional indemnity insurance needed?
Professional Indemnity cover protects your business from financially crippling and often reputation-damaging claims by dissatisfied clients. Even the most respectable companies can find themselves in dispute with a client over a mistake. Below are some of the danger areas your small business could be exposed to:
- Negligence - a breach of duty of care
- Intellectual property - where you unintentionally infringe on someone's copyrights, trademarks, broadcasting rights, or you may inadvertently pass your business off
- Loss of documents or data - damaged, lost or stolen data and documents belonging to your clients
- Dishonesty - liability arising from the theft of your clients' money
What cover does a professional indemnity policy provide?
Professional indemnity insurance works in a number of ways.
It will cover you if you make a mistake in the professional services you have provided should this lead to a dispute with a client. If the dispute becomes complicated, your insurer can defend your claim - right through to the High Court, if necessary. Even if you lose, the policy will still cover you for any damages you then become liable for, subject to the level of cover for which your business is insured.
Professional indemnity insurance will also cover the cost of fixing any mistake on your part, which will potentially help you avoid a larger claim.
You are also protected by your professional indemnity insurance policy if you lose or damage any clients' documents or if one of your employees is involved in the theft of a client's money.
It is of critical importance that you maintain continuous PI insurance if this is a coverage you need, as the indemnity is on a 'claims made' basis and any gaps in time could result in an exposure.
How much professional indemnity cover will my business need?
The amount of cover your small business needs depends entirely on the type of services it provides, so there is no general rule of thumb for how much cover your business will need. You know your business best and the sort of exposure it faces.
When deciding on the amount of professional indemnity cover to have you should consider the value of the work you are doing for your clients and the potential financial impact on them should it go wrong. Other than that, it's advisable to buy as much cover as you can afford.
Sometimes your client will set a minimum limit of the indemnity they require before you can work with them. This can depend on the specific nature of the services you've been contracted to provide, or they could have a set limit for all their service providers. Many UK government departments, for example, will require their contractors and consultants to have at least £5 million of cover.
It is also worth considering taking retroactive cover for work that you've already completed before the policy commences. This means that your professional indemnity insurance policy will cover you for any claims arising out of work you completed in the past. You will be given the option of taking out retroactive cover when you get your professional indemnity insurance quote.
You may also wish to consider public liability insurance and employers liability insurance.