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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.
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.
Professional indemnity insurance is not one-size-fits-all. The cost for cover can vary dramatically depending on the insured’s cover needs.
When negotiating a competitive premium, the following factors are taken into consideration:
Don’t just compare on price. Professionals should be on the look-out for insurers that:
It is important to get a number of quotes and talk to a variety of insurers before committing to any particular policy.
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.
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:
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:
Most UK workers are covered under their employer’s liability cover. However, any worker carrying out any consulting or contracting work must ensure that they have adequate and appropriate professional indemnity insurance in place.
All professionals should take the time to review the current cover they have in place and assess whether it is worth them taking out additional cover to ensure they are protected from claims against errors or omissions they have made in the provision of their professional activities.
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:
There are some important policy features that you should understand when it comes to professional indemnity.
Professional indemnity is designed on what’s known as a “claims made” basis. This means the insurer you were with at the time a claim is made is responsible for handling the claim, as opposed to the insurer you had at the time of the event occurring (unless you are using the same insurer). Here’s a general idea of what it looks like.
|Claims made vs claims occurring||Policy type||Claims occurring||What’s this mean?|
|Claims made||Professional indemnity insurance||The day you become aware of a claim and give notice to the insurer.||If you switched insurers after the event occurred, but the claim is made under a new insurer, they must handle the claim.|
|Claims occurring||Public liability insurance||When the event that results in a loss occurs.||If you switch insurers after the event occurred, the old insurer is still responsible for handling the claim.|
This means that the insurer must work to settle the claim even if the event leading to the claim took place when the policyholder was insured under another policy. This ensures that workers that have changed employers are still covered for events that took place for service provided to previous clients.
Run off cover provides an extension of the policy cover after a policyholder has stopped trading, e.g. the business has been sold, foreclosure, a merger or the policyholder has retired.
This will vary between individuals and organisations. Government bodies can provide advice on an appropriate run off period based on the service provided. It is best to review the legislation on the profession to determine how long following the provision of the service that claims can be filed and legal proceedings commenced against a professional.
Some insurance brands limit the retroactive date to the time your business first took out professional indemnity cover but, ideally, you will typically hope for the retroactive date to be not any later than the date your business began offering services to customers. If you change to a different professional indemnity insurer, in most cases the retroactive date in place will be carried forward by the new insurer so that past work you have performed is still covered.
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:
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.
|What’s covered||Professional indemnity||Public liability|
|Types of businesses it’s designed for||Any business that provides professional advice to its clients||Any business that works with clients in public spaces|
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.
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.
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.
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.
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:
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