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.
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.
What is covered
Damages and compensation costs against you
Public relations fees
The cost of investigation
What is NOT covered
Damages to property
Damages from intentional acts
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:
You offer a professional service. If a small mistake in your work could cause your client grief then cover is essential, e.g an architect who incorrectly develops a building plan.
You consult or provide advice, e.g. if your advice causes harm then you could be eligible to be sued.
You treat people or even animals, e.g. a veterinarian or a medical consultant.
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:
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.
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.
Are you employed or a contractor?
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.
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:
Architects and designers
Finance and mortgage brokers
Real estate agents
Beauty, massage and physiotherapists
Travel agents and tour operators
Features of professional indemnity to understand
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
What’s this mean?
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.
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.
It is not unusual for claims against professionals and businesses to be made a few years after providing service to the client.
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.
How long should run off cover be taken out for?
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.
Fidelity insurance is a form of additional cover that protects the policyholder for direct losses suffered as a result of dishonest acts of their employees. Fidelity insurance generally covers loss or misappropriation of a client’s funds that were under the control of an employee in their business. This cover can be taken out as a separate policy or included as an extension of the standard professional indemnity insurance policy. Common exclusions for fidelity insurance are:
Loss must be discovered by the insured during the period of insurance
Insurer must be notified of loss within a specified period of time. This will be outlined in the policy disclosure statement
Cover is not provided for losses that have occurred following the discovery by the insured of such conduct by the principal, director or employee or after the insured had reasonable grounds for suspicion of the act occurring
Indirect or consequential loss is generally not covered. This may include liability to third parties, trading losses, investigation costs or damages of any kind
Insured must be able to substantiate to the insurer any loss covered by this policy extension
Each policy will have a sub-limit applied for liability payable to the insured in the event of a loss occurring
The retroactive date refers to the date after which your professional indemnity insurer will cover any acts, errors or omissions committed by you. In other words, any acts, errors or omissions that occur prior to this date will not be covered by your policy. There are two ways in which the retroactive date can be listed – unlimited or specified – so you’ll need to check the fine print of your policy to see which definition your insurer uses.
Unlimited retroactive date: The insurer will cover claims relating to acts, errors or omissions regardless of when they occurred.
Specified retroactive date: The policy is restricted to cover claims that arise from acts, errors or omissions that occur after the date outlined in your policy documents.
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.
The limit of indemnity is the maximum amount an insurer will pay in regard to any one claim made against you. However, it’s important to check whether your policy has a costs inclusive limit of indemnity or a costs exclusive limit of indemnity.
Costs inclusive: This includes defence costs in the maximum amount it will pay for a claim. So if your policy offers £3 million cover, costs inclusive, and if a claim is made against which requires you to pay a liability of £3 million to the claimant but also sees you incur legal defence costs of £300,000, your policy will only cover the £300,000 legal costs plus £2.7 million of liability. That leaves you with £300,000 left to cover out of your own pocket.
Costs exclusive: Legal defence costs are covered in addition to the limit of indemnity, which means it could be a more desirable option for most businesses.
It’s also important to check whether the excess payable under your professional indemnity insurance policy is costs exclusive or costs inclusive. With a costs exclusive excess, you won’t have to pay an excess when you incur legal costs during the successful defence of a claim. Instead, you’ll only have to pay an excess if you have to pay compensation in respect of a claim. On the other hand, a costs inclusive excess is payable when you incur defence costs – regardless of whether you end up having to pay compensation to the claimant or not. That’s why it makes sense to look for a policy that offers a costs exclusive 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
Covers legal liability for claims arising from an act, error or omission of duty by the professional
Cover can include claims for personal injury, professional injury or financial loss
Provides cover for claims made for actual breaches of professional duty
Provides cover for legal liability due to personal injury or property damage caused by your business
Product liability is an extension of public liability providing cover for personal injury or damage caused by the use of your products
Cover may not always extend to claims for financial loss if there has been an injury or damage
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
Does not cover accidental injury
Event giving rise to the claim will often have to occur within the period of insurance for cover to apply
The claimant must be able to establish that the cause of the loss has direct connection to the business
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
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
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
Frequently asked questions
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.
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.
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.
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
Willam Eve is the country manager for Finder's Canada operations. He has previously held the positions of group publisher of insurance for Finder Australia and lead publisher for the Finder global team. William has a Bachelor of Communications from the University of Technology Sydney, Australia. He loves the challenge of launching Finder into new markets while helping grow Finder’s global team.
Read more on this topic
Carpenter insuranceFind out what type of carpenter insurance is a legal requirement, what's included in the cover and how to get the best deal.
Commercial property insuranceIf you own a commercially used building (whether you use it yourself or rent it out), you should consider taking out commercial property insurance. Find out what's included here.
Market trader insuranceMarkets can be hectic environments. Find out what type of market trader insurance you need to protect yourself, your customers and your stock, and what's included in the cover.
Electrician insuranceWorking with electricity can be a risky business. Find out what type of electrician insurance you need and what's included in the cover.
Charity insuranceWhether you run a large organisation or a small charity, find out what insurance you need to protect your good work and what's included in the cover.
Accountancy insuranceFind out what type of insurance you need as an accountant, what's included in the cover and how much the average claim is worth.
Hairdresser insuranceWhether you have your own salon, rent a chair or run a mobile service, find out what type of hairdresser insurance you need and what's included in the cover.
Massage therapy insuranceFind out what type of insurance you need as a massage therapist, what's included and how much it's likely to cost.
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.