What is professional indemnity insurance?
Professional indemnity insurance (also known as errors and omissions insurance) is a product that provides protection in the event that you or your business give mistaken professional advice, designs or services.
If your business has unlimited liability (i.e. you are a sole trader or partnership), PII also protects your personal assets. For instance, if your business didn’t have cover and it couldn’t meet the costs of a claim, you may personally have to make up the difference. PII will cover all of these costs.
While you might not think that you’ll make a mistake, it’s important to remember that even the most renowned experts do from time to time. Professional indemnity insurance provides peace of mind that your business is protected in the event of a mistake.
Remember, claims can be brought against you even if you gave your services for free.
How does professional indemnity insurance work?
You must notify your insurer as soon as you’re aware of a circumstance that might result in a claim. If you use a broker, speak to them first. They can advise on how to notify your insurer and the information you should supply.
You should then receive guidance from your insurer about how to proceed. If you attempt to remedy any problem or claim without this advice, you could prejudice the insurer’s position with regards to a claim settlement.
There are three main professional indemnity claims scenarios.
- For most small claims, the insurer will work with you to defend a claim. For instance, if you work in agriculture, the underwriter and claims consultant will rely on you for industry-specific details. They will provide legal expertise and draft responses.
- If it has potential to be a large claim, or it looks to be litigious, your insurer may appoint a solicitor or a claims manager to deal with your client. They will negotiate a settlement or manage your defence in order to minimise a claim.
- There is a level between these two scenarios, where a claims underwriter will correspond with your client to negotiate a settlement.
It’s important to remember that PII is a claims-made process. That means the policy in place now is the one that deals with claims. It is not the policy in place when the advice or service was provided.
Professional indemnity insurance covers the cost of legal representation and any compensation in the event that a client claims you provided negligent or mistaken advice, specifications or designs.
Other risks covered include:
- Breach of confidentiality
- Infringement of copyright, trademarks and intellectual property (IP)
- Formal investigation costs
- Loss of documents or records
Optional extras can also be added, including cover for pollution- and asbestos-related risks.
At Alan Boswell Group, we can arrange specialist professional indemnity insurance for a variety of different industries, including estate agents, IT consultants, environmental consultants and architects. These policies cover the sector-specific risks.
Do I need professional indemnity insurance?
Professional indemnity insurance is not a legal requirement. However, some industry bodies may need you to have it in order to be a member. You may also find that it is a contractual obligation when tendering for work.
How much professional indemnity insurance should I have?
The amount of professional indemnity insurance your business needs depends on a range of factors. These include what your business does, your industry, any professional bodies you may be a member of and any contractual obligations you may have.
Some industry bodies specify a minimum amount of cover for their members. For instance, chartered surveyors need to have a minimum of £250,000 of cover (based on the size of their business), while accountants are required to have a multiple of their income and solicitors have limits based on their corporate formation. Figures also change according to industry risk.
Limits may be specified by a contract too. For instance, if you’re trading with the government or a US company, your contract will state the level of cover you should have.
We can arrange limits from £50,000 and have arranged policies for risks in excess of £25 million.
How much does professional indemnity insurance cost?
Professional indemnity insurance from Alan Boswell Group starts at just £100 a year.
The cost of your PII premium is dependent on the limits arranged and your business’ exposure to risk. It is also affected by various factors including what you do, what you earn and your previous claims experience.
You should never tell people that you hold professional indemnity insurance in the event of a claim. Nor should you tell then who you are insured with. That’s because a client could potentially increase the value of a claim because they think your insurer will cover it.
If you are faced with a potential claim, tell your client you are seeking legal advice. Then speak to your insurer to find out the course of action you should take.
What is run-off cover?
Run-off cover protects you against claims for advice you’ve given in the past if you stop trading. For example, if you retire or sell your business, you will need cover for historical services.
That’s because professional indemnity insurance is a ‘claims-made’ policy. That means you claim on your current PI policy, even for advice given in the past. You cannot claim from the insurer you had at the time of providing your service. If you retire or leave the business, you will still need some form of protection, which is what run-off cover is for.
An insurer will either offer run-off on an annual basis for a reducing premium (subject to claims etc.) or, a single-premium policy (depending on your industry). This tends to provide cover for up to six years.
Are legal expenses included with professional indemnity insurance?
Yes. Professional indemnity insurance will cover the cost of any legal fees relating to a claim. It will also cover the costs of any compensation or settlement awarded, up to your limit of indemnity.
What is the typical excess for professional indemnity insurance?
Excess for professional indemnity insurance policies tend to start from £250 per claim. This figure varies according to your industry and your policy. You may choose to increase or decrease the value of your excess according to your business needs.