Professional Indemnity Insurance - The Ultimate Guide
In 2013, an exceptional professional indemnity claim was filed in the UK: £1,6 billion claimed to an accountancy consulting firm, accused of professional negligence by its client.
This particular case seems extreme, but what does make you think that it will never happen to you ?
You may not be claimed by your client £1 billion, but even a few thousands pounds claimed plus the correlated legal costs could cause you serious financial troubles. This is where professional indemnity insurance is very useful - and for some companies indispensable.
What is professional indemnity insurance?
Professional indemnity insurance acts as a cover when it turns out that you have made your work wrong when providing advice, services or designs to a client, resulting in a financial loss for him. When a client of yours decides to take a legal action to claim back his losses, your professional indemnity insurance will cover costs such as compensation, legal fees and other expenses incurred by your defense.
Even if your are convinced by the quality of your work, it is always better to be covered by a professional indemnity insurance. Indeed, even if you are in very good terms with your client and have a very good reputation in what you do, you never know when a client can decide to sue you and claim compensation. And needless to say to we all make mistakes sometimes.
What does professional indemnity insurance cover?
Professional indemnity insurance compensates costs incurred if you have to answer a claim made by a client against you. The following items can be compensated by professional indemnity insurance:
- Compensation costs following a loss of your client due to an advice or service of yours
- Legal expenses incurred if you are sued to the Court (includes sometimes solicitors’ fees and expert counsel)
- Other expenses incurred by a claim made by a client against you
Under which situations if professional indemnity insurance useful?
Those are typical situation for which your company has to be protected by a professional indemnity insurance:
- When you make a mistake or provide wrong advice that turns harmful for your client
- When you break sensitive information confidentiality
- When you are held responsible for losing your client's data
- If you make a public statement harmful to your client' reputation
- When you infringe copyright protection without being permitted.
When you are held responsible for one of those situations, the cost can be very high. That is why it is better to be covered.
Who needs professional indemnity insurance in the UK?
In the UK, professional indemnity insurance is not a legal requirement to run a business. However, you will need professional indemnity insurance in particular work situations. This is the case when :
- You provide professional services to another company
- You provide advice to another company
- You handle intellectual property on behalf of another company
- You deal with sensitive data for another company.
In most of this cases, your client will expect from you that you are properly covered against professional indemnity losses, otherwise he may not work with you.
How much professional indemnity insurance do I need?
There is a wide range of covers that a company can choose, generally going from £50,000 to £5,000,000. This choice depends a lot on the kind of activity and projects you are working on. You will need to think about all the eventualities that could occur in the course of your work, and opt for a cover level suiting your needs. Some businesses will have cover levels imposed by their regulatory bodies (always check) or clients.
If you have no clue on which cover level you should have, you can talk about it with your counsel. Here are some standard cover levels:
|Cover level||Category of businesses concerned|
|£50,000||Basic professional indemnity cover, for small business such as freelancers or independent workers|
|£1,000,000||Medium to large companies, for example accounting consultancy firms or architecture firms|
|£5,000,000||Large companies providing large-scale services, such as big accounting firms or large-scale health services companies|
How much does professional indemnity insurance cost?
The cost of a professional indemnity insurance depends mainly on two parameters :
- The level of cover you wish to have
- The nature of your work.
Usually, professional indemnity insurance is purchased through an insurance business package together with other guarantees.
However, if you want to opt for a professional indemnity insurance alone, there are quotes starting at around £70 per year for 'non-risky' activities and a basic cover level of £50,000, which can go up to £350 per year for the biggest level of covers.
For specific "risky" businesses, insurance providers will propose professional indemnity plan at higher prices, that really depends on the company's activity. The best way to find out is to use an insurance comparison platform such as HelloSafe.
What type of businesses does professional indemnity insurance cover?
Businesses that deliver professional services, advice, design, or that manage sensitive data are the ones that should have a professional indemnity cover. Indeed, some regulatory bodies, consultancy activities and advisors are even obliged in some cases to subscribe to a professional indemnity insurance. Here are the businesses most concerned by professional indemnity insurance:
- Business consultants
- Healthcare workers
- Construction workers
- Sport teachers
- Financial advisors
- IT contractors
- Chartered surveyors
The following table summarizes the risks that those different businesses face in terms of professional indemnity:
|Design businesses||They can be held responsible for delivering wrong design or bad quality construction harmful to the client|
|Consultancy / advisory service businesses||They can be claimed if the advice they deliver is proved wrong and badly influences their client's choices, creating losses|
|Engineering and IT services||They can be held responsible for breaking sensitive information's confidentiality or losing some of the client's data|
Our top 10 tips before you choose your professional indemnity insurance plan
Here is a list of tips you'd better bear in mind when your pick up your professional indemnity insurance quote:
- Before purchasing any professional indemnity insurance plan, make sure you are well informed on the topic and that you understand what is at stake
- If you are a big company, try to calculate the costs that could represent client claims on which your company could be held liable for, and try to define the adequate level of cover
- Do not always choose the cheapest deal. An appropriate professional indemnity insurance is meant to protect you in case something wrong happen, the risk shouldn't be minored
- If you think you do not need professional indemnity insurance, think it twice
- Once you have purchased your professional indemnity insurance, always keep a record of it, in case a client or a regulatory body asks for a proof
- If appropriated to your business, don't hesitate to combine your business insurance into a package which includes professional indemnity insurance
- Try to choose an insurance plan where the legal costs cover level is high - they can reach huge amounts if one day your company is sued
- If you have a doubt on whether you should purchase a professional indemnity insurance or not, consult your legal advice for accurate responses
- Compare the best business insurance packages with an online platform such as HelloSafe
- Consider public professional indemnity insurance as a protection, not a cost.
How to get professional indemnity insurance?
The best way to find the professional indemnity insurance deal most suited to your company's needs at the best price is to use a business insurance comparator, such as the one we propose. Use our online insurance comparator and check our trusted providers.
Professional indemnity insurance is not a legal requirement to run a business in the UK. However, it is most recommended among business owners to subscribe a professional indemnity cover in case something happens.
The fiscal UK law establishes that when you calculate your taxable profit, the cost of your professional indemnity insurance is deductible. It is indeed classified as an 'allowable expense' by the administration.
Professional indemnity insurance will cover you in case your are held responsible for one of your client's losses due to a mistake when delivering advice, services or design. Instead, public liability insurance covers material damages that could be made by an employee to a member of the public. Indeed, those are two different covers - the first applying for immaterial damages, the second applying for material damages on people or things.
There is a large array of business insurance types - within which the employers' liability insurance is the only mandatory one. To effectively protect your company against any risk, you might want to purchase a business insurance package, including policies such as public liability and professional indemnities. You can also pick up extra covers to insure your premises, your stock, your equipment, your tools, business interruption, etc.