Compare professional indemnity insurance in the UK

Does your business rely on providing a professional service or advice? If so, there’s always the chance of human error and this can leave you liable if something goes wrong. This is where professional indemnity insurance comes in.

What is professional indemnity insurance?

Professional indemnity (also known as personal indemnity insurance, or PII) is designed to cover the potential costs of unforeseen mistakes for both self-employed workers and businesses across many different industries.

How much does professional indemnity insurance cost?

Professional indemnity insurance is not one-size-fits-all. The cost for cover can vary dramatically depending on the insured’s cover needs.

Key factors that will affect your quote

When negotiating a competitive premium, the following factors are taken into consideration:

• Number of staff employed by the company and annual turnover. Sole traders or companies with, say, 15 employees won’t require the same level of cover as large-scale organisations.
• Types of clients. Professionals that work on large-scale, multi-million pound projects will require a higher level of cover than smaller firms.
• Industry. Industries like construction carry higher risks and make more claims than other industries and this affects the premium that can be offered to clients.
• The specific business activities and risks. Even within the same industry, different businesses or independent contractors will have a specific niche or risk associated. A full assessment of your business activities is recommended to ensure the most appropriate cover.
• Policy inclusions and exclusions. Obviously more comprehensive protection packages with increased levels of cover will cost more than more basic policies.

Some additional factors you might not realise

• Previous claims history. If no claims have been made against a client then a lower premium can be arranged.
• The amount of excess you’re willing to pay in the event that a claim is made. A higher excess can enable you to pay a lower premium. This does mean more comes out of your pocket during claim time.
• The statutory requirements for each industry. Some industries require a minimum PI insurance coverage. The higher the cover you require, the more expensive your premium will be.

Should I just compare price?

Don’t just compare on price. Professionals should be on the look-out for insurers that:

• Understand their particular industry and manage policies of similar businesses
• Can produce evidence or reviews of favourable outcomes for clients when claims are made
• Are approved by the governing body and membership association of your industry
• Have clear policy guidelines regarding inclusions and exclusions and communicate them to you so you know exactly where you stand
• Take a personal approach and assess your business specifically to identify the proposed risks in order to assign adequate cover

It is important to get a number of quotes and talk to a variety of insurers before committing to any particular policy.

What’s covered (and what’s not)

Professional indemnity is designed to cover the policyholder for any third party damage that may be incurred if a client files a claim. Any ensuing compensation that may be required to be paid to the client from the individual or business is also covered.

Some policies will offer cover for claims from clients for financial loss, bodily harm or damage to property due to errors in the provision of the service. An example could be a medical professional providing incorrect advice and then having to cover the client’s subsequent medical expenses.

Do I need professional indemnity insurance?

Any time advice is provided to clients, you should consider professional indemnity insurance.

Despite your utmost care, mistakes and lack of judgement can happen in the workplace and will often lead to the professional’s client seeking compensation for damages. A professional can still be liable for losses even if the mistake was not a result of their own negligence. Even if the claim is illegitimate, you may still need to go through the legal process of defending yourself against it.

Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs.

Here are some situations where professional indemnity insurance could be applicable:

Typical scenarios for specific occupations

Some of the industries now prioritising professional indemnity insurance include financial advisers, lawyers, tradespeople, marriage celebrants, beauty therapists, engineers, personal trainers and graphic designers. Here are some real-life examples of professional indemnity insurance claims:

• Accountant

  • An accountant advised their client that an expense was tax-deductible. HMRC investigated the claim and fined the client. The accountant was liable to pay legal fees to defend the claim and pay compensation to the client. Having professional indemnity insurance ensured those costs were covered.

• Events manager

  • An events manager double booked a room at a function centre, resulting in the cancellation of one of the events. The client whose event was cancelled made a claim seeking damages for lost business and to recoup expenses. The events manager was able to cover these costs because they had a PI policy in place.

Services that generally require professional indemnity insurance

As mentioned previously, anyone who provides advice or a service to another in an established discipline is a potential candidate for professional indemnity insurance. Some typical professions that will usually require professional indemnity insurance include:

Features of professional indemnity to understand

There are some important policy features that you should understand when it comes to professional indemnity.

• Claims made cover
• Run off cover
• Fidelity insurance

3 tricky terms to be aware of

• 1. The policy retroactive date
• 2. Costs inclusive vs exclusive limit of indemnity
• 3. Costs exclusive vs inclusive excess

How much cover do I need?

Unfortunately there is no set answer for how much cover you should take out. Every business is different and there are different regulations in place for minimum cover required for certain professions. Some other factors to consider that will impact what you pay for cover include:

• Clause of contract. Most contracts will specify a minimum amount of cover that the worker must have in place to carry out the project.
• Type of project and value. This is the correlation between the value and size of the project being undertaken and the workers’ exposure to claims for professional negligence.
• Perceived exposures. This is the assessment of possible causes of loss, injury or damage that may lead to a claim being brought against you.
• Number of parties relying on advice. If the nature of the project means that advice will be passed onto more than one party, the worker may be liable for claims from other parties affected.
• Cost of defending a claim. Some policies will have an additional limit applied for the actual cost of defending a claim. Lengthy court cases can quickly run into the tens if not hundreds of thousands of pounds.
• Willingness to carry risk. This requires the worker to assess how much of the risk they are willing to carry themselves with a lower policy limit or by transferring the risk to other parties.
• Cover for previous claims. Professional indemnity insurance is of a “claims made basis”. This means that cover can apply for claims made against the worker for previous activities. With this in mind, it’s important to consider the potential value of claims in the future following inflation.

Determining an appropriate level of cover is no easy task. It’s worth taking the time to speak with a financial adviser to help you assess the risks you are exposed to and what protection packages may be suitable.

Professional indemnity vs public liability

Can I get covered for both under one policy?

Yes, you can.

One of the main reasons that people often get confused between these different types of cover is because many policies will provide cover for public, product and professional liability under the single policy.

How will I know if I have combined cover?

This is usually outlined in the product cover features and exclusions though it can be difficult for applicants to know exactly what events they will be covered for. Many professional indemnity insurance policies will have exclusions in place for injury or damages to property and vice versa. As an example, a professional indemnity insurance policy may have the cover extension that provides cover for claims arising out of “manufacturing, loss or faulty workmanship”, though this may recognise personal injury or damage to property as a loss.

What are the risks of a combined policy?

The risk is that many policyholders may actually be significantly underinsured from particular losses by relying on one umbrella policy to provide adequate cover for public, product and professional liability. It is worth speaking to an insurance consultant to help them find and tailor a policy closer to their needs.

How do I compare professional indemnity insurance?

With so many different cover options available in the UK professional indemnity insurance market, it is crucial that any sole trader or business looking to take out cover takes the necessary steps to compare different options to ensure they are receiving adequate cover at the right price.

• Default cover features: It is critical that anyone looking to take out cover closely reviews the cover features listed in the product disclosure statement to know exactly what liability they will be covered for. Refer to this section for an overview of typical cover options.
• Policy extensions: Most policies will offer a number of additional cover options to applicants to ensure there is an adequate level of cover in place. Such extensions may include run off cover and fidelity insurance.
• Limit of liability: Each insurer will clearly state the maximum compensation that will be paid for each claim within the product disclosure statement.
• Policy exclusions: Each insurer will have its own set of exclusions for when a policy will not be paid. It is critical that these are reviewed closely when comparing policies to avoid any surprises in the event that a claim is made further down the track. It is not enough to just skim over these… the conditions for payment must be closely reviewed and understood.
• Entities covered under the policy: Each policy will list the parties that will be covered under the policy. It is critical that any business owners looking to take out cover for employees and other entities related to their business have a clear understanding of whom exactly is covered for the provision of professional services.
• Professional services provided in the past: It is vital to have a clear understanding of how your insurer deals with claims for work that you carried out with a previous employer or while covered under a previous policy. Many policies will not recognise claims that have been made outside of their retroactive date.
• Cooling off period: Each provider will offer a cooling off period whereby you will have the option to cancel your cover if you feel it does not meet your needs. This is generally about 21 days.
• Claim conditions: Insurance brands will have conditions in place for the payment of claims for different liability faced by the insured. Some key aspects of the insurer’s claims conditions to review include:
  • Alteration to risk
  • Assignment
  • Authorisation
  • Cancellation/termination
  • Changes to the policy
  • Worldwide territorial/jurisdictional limits

How do I make a claim?

In the event that a claim is made against the insured, it is their duty to inform the insurer as soon as possible. Notice is to be put in writing and sent to the insurer by courier, fax or certified mail. The insurer will recognise that notice has been received once their underwriting division has received the notice. Every letter, demand, writ, summons and legal process received by the insured related to the claim must also be forwarded across to the insurer. Most insurance brands will have a claims form located on their website for the insured to complete. These will usually be comprised of the following sections:

• Details of the insured
• Policy details
• General information about the claimant or potential claimant
• Details of the insured’s retainer/contract
• Details of the claim or circumstance
• Details of the insured’s response
• List of relevant documents that have been attached to the claim form
• Insured’s declaration

Frequently asked questions

• Who is considered a professional?

  An individual that provides advice and/or a service in an established discipline is considered to be a professional. This may be anyone from lawyers to architects to graphic designers.

• Why is professional indemnity insurance necessary?

  Each professional is responsible for showing duty of care in the provision of their service to clients and members of the public. In the event that in the course of provision of the service the client suffers a loss through an act, error or omission by the professional, professional indemnity insurance protects the professional from financial loss that may be suffered from any claims. Some workers will be required to hold a professional indemnity insurance policy by law either as a contractual requirement or to be a member of an association relevant to their field.

• When should an insurer be notified in relation to a claim made?

  An insurer should be notified at the occurrence of any fact, situation or circumstance that would provide a reasonable basis for belief that a claim might be made against the insured. The earlier that the insurer is notified, the less the likelihood of a successful claim being made against the insured.

• What does a professional indemnity insurance policy contain?

  • Clauses: These lay out the insurance brand’s obligations to the insured in the event that a claim is made
  • Exclusions: The exclusions outline the conditions of the policy clauses and events where the insurer is not liable to indemnify the insured
  • Conditions: These outline the general and claim conditions applied to the policy. They establish the preconditions to coverage under the policy
  • Extensions: Any additional options that may be necessary for the applicant to take out to ensure adequate protection is in place. This may include cover for product liability or run off cover