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.

How much does professional indemnity insurance cost?

Annual premiums can start from as low as £ 50.00 for an occupation considered low-risk but considerably more for large high risk businesses. Premiums vary significantly between occupations. For example an advertising agency will pay a lower premium compared to a solicitor or 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.

How is the premium calculated?

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.

How big is the professional indemnity market?

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. 

What does it cover?

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.

What is a Claims Made wording?

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.

Some examples of professional indemnity claims

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 requirements. Claim settlement £80,000
• An IT Freelance Contractor failed to deliver an adequate standard of work. The client alleged substantial deficiencies in the computer system. Claim settlement £20,000
• 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

Who needs Professional Indemnity Insurance?

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.

• Business Advisers
• Solicitors
• Freelancers
• Management Consultants
• Cloud Services
• IT Consultants
• Architects
• Financial Advisers
• HR Consultants
• Copywriters and Writers
• Translators & Interpreters
• Engineers
• Accountants
• Software engineers

Many professions such as solicitors, architects, accountants, financial advisers, surveyors are required to have PI 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.