With so many different products available, it's important to have some understanding of how the professional indemnity market works to be able to make an informed decision on which policy is best for your business.
Although cost is important, there are other factors to consider to ensure you buy a policy which does what you expect it to do when you make a claim.
Our guide to professional indemnity insurance covers the following key points;
- Professional indemnity insurance explained
- The cost of professional indemnity insurance
- How the premium is calculated
- Size of the market
- What's covered?
- The 'claims made' wording
- Example claims
- Who should buy cover?
Professional indemnity insurance (PI) will protect you against claims for loss or damage made against you by clients or third parties as a result of negligent or alleged negligent services or advice you provide.
As today’s business environment is much more litigious than it used to be, even the most established businesses can find themselves in a reputation-damaging dispute with a client over a mistake. Claims can still be brought against you even if you do not accept you have been negligent.
Annual premiums can start from as low as £ 60.00 for an occupation considered low-risk, but much more for high risk businesses such as those in legal or financial services. So premiums vary significantly between occupations; for example an advertising agency will pay a much lower premium compared to a solicitor of similar size, as they are very different risks.
There are many insurance companies actively providing this insurance cover in the UK so it’s a highly competitive market and you need a good broker to find you the best deal.
Professional indemnity premiums are calculated using a range of important risk factors which will typically include:
- Claims history
- Occupation and type of work undertaken
- Number of partners or directors to staff ratios
- Fee income
Low risk occupations with small turnover can usually buy cover quickly and easily online. Higher risk and larger firms will be underwritten individually and will complete a proposal form which an Underwriter will consider in detail. They will also look at the firm’s website or they may even look deeper online into a firm’s background.
There are no formal statistics about the size of the market and estimates vary between sources. We estimate that the UK professional indemnity insurance market is worth around £ 2 billion in annual premiums.
The internet has now made this class of insurance very accessible and affordable. An estimated 500,000 small businesses / freelancers now purchase their PI insurance online, although buying PI online is certainly not suitable for every business.
More complex professions and larger firms need to source and buy their PI insurance using the services of a broker. If you need a broker service we are available on 01934 710144 or send us a message.
Here is a list of some of the risks which may be covered by a professional indemnity policy:
- Negligent act, error or omission
- Dishonesty and fraud
- Accidental infringe on intellectual property
- Loss of documents or data
- Unintentional defamation (libel and slander)
Professional indemnity insurance will also pay the legal costs incurred in the defence and settlement of claims.
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.
For example, if an incident occurred in 2014 when you had professional indemnity cover, but the client brings a claim against you in 2015 – after your policy has expired – you will not be insured for that claim. A policy must always be in force for a claim to be met by an insurer.
Any profession or occupation providing a service or advice can make a costly mistake. Resulting negligence claims range in size from relatively small amounts, to high level litigation between major companies which can run to billions. We’ve selected just a few examples.
- Software Designers found that there were deficiencies in the design of a software package for the client. The system failed to meet the clients requirements. Claim settlement £ 800,000
- An IT Freelance Contractor failed to deliver an adequate standard of work. The client alleged substantial deficiencies in the computer system. Claim settlement £ 200,000
- Graphic Designer used a text book drawing adapted to use as a logo for a client and was sued for breach of copyright. Claim settlement £ 4,000
- Firm of Actuaries used incorrect tables for an annuity scheme which led to the client making over-payments. Claim settlement £ 1,300,000
- Conference Organisers were negligent in the organisation of a conference which was a total failure and they were sued by their client. Claim settlement £ 29,000
Anyone who provides advice, designs or offers a professional service will need PI insurance cover. There are now over 500 different occupations buying this insurance and a few examples are shown below.
- Management Consultants
- Cloud Services
- Tech companies
- Financial Advisers
- Copywriters and Writers
- Translators & Interpreters
- Software engineers
Many professions such as solicitors, architects, accountants, financial advisers, surveyors are required to carry professional indemnity insurance as a regulatory requirement.
This guidance note is intended for information purposes only. It is not and does not purport to be legal or accountancy advice. Whilst all care has been taken to ensure the accuracy of the guidance note it is not to be regarded as a substitute for specific advice. This guidance note shall not be reproduced in any form without our prior permission. © 2018. All copyright is owned by Professional Indemnity Insurance Brokers Ltd