In our blog, Professional Indemnity Explained we took a helicopter view of what PI Insurance is and some practical examples as to how this could protect your business. So now you know what is, you might still be asking yourself if you need it.
Let’s unpack some more of the jargon and see if we can help you through the Insurance maze!
Do I need PI Cover?
If you class yourself as an expert or professional in your trade and provide advice or services to your clients, then the answer to that question is probably “Yes”.
Legal bills and court costs continue to rise, and a significant PI claim could destroy your business as well as your reputation.
As a professional, the law dictates that you owe an increased “Duty Of Care” to your clients and if things go wrong, or just as importantly, if the client believes things have gone wrong, then they could look to you to rectify the situation or to compensate them.
As well as the more traditional professions such as Solicitors, Accountants, Surveyors, Engineers, Architects, Insurance Brokers or Financial Advisors; many new consulting or service-based professionals are equally exposed to a PI claim. These can include:
- IT Consultants or Professionals
- Trainers, Private tutors, teachers, business or life coaches
- All consultants from HR or Business Management Consultants to trade specific consultancy
- Product Designers or Graphic Designers
- Recruitment Consultants or Headhunters
- Estate Agents or Property Letting Agents
Is Professional Indemnity compulsory?
In many business sectors, PI Insurance is compulsory, either by industry regulator or professional association including:-
- FCA registered companies such as Financial Advisors or Insurance Brokers
- Solicitors under regulation of SRA (Solicitors Regulation Authority)
- Surveyors under regulation of RICS (Royal Institute of Chartered Surveyors)
- Accountants as a requirement of membership to one of the six different governing bodies
In other trades or professions, you may still find that Indemnity cover is required as part of a tender process or a condition of a contract.
Having PI Insurance with a recognised and secure insurer can also instil confidence in your business and give you an advantage over the competition.
What level of Cover Do I Need?
If I had a pound for every time, we’re asked that question……There is also no easy answer, but let’s see if we can help a little!
Sometimes the minimum level of cover will be dictated by your professional body or condition of a contract, you then have a starting point, wide of that, it usually is possible to arrange cover with an indemnity from as little as £50,000.
In reality, though, you need to think less about minimums and more about your business and the potential loss:-
- How much is your highest contract worth?
- If the worst happened, what would be the impact on your client?
- Are you in an industry where you advice impacts multiple clients? If so, you also need to carefully consider the type of indemnity limit you’re purchasing, be it aggregate or any-one-claim.
- What can you afford? In an ideal world, you need to purchase the highest limit your budget will allow, taking into account all of the above points, and it should also be reviewed regularly as your business develops and expands.
How Do Insurers Calculate Indemnity Quotes?
In the main, Insurers will determine premiums based on the business activities of your company and the fee income. I.e. how much business you are doing and how risky, based on their historical data, do they believe your work is in terms of the likelihood of a claim.
Other impacting factors are the size of your clients, size of individual contracts and your general level of expertise in your field.
My Contract Requesting PI Insurance Is Only For 6 Months, Can I Buy short-Term Cover?
Now we’re really getting into the bones of it. Much like dogs and Christmas, PI Insurance is for life, well, not quite life, but it is provided on a claims-made-basis (sorry – more jargon!).
What this means in practice is that you need cover in place, not just at the time you carried out the work, but also when the claim is made against you.
For some professions, claims can be received years after the work was completed – For example, Financial Advisors are still receiving claims from clients in respect of endowment policy sales over 20 years ago.
Before accepting the contract, consider the type of work you’re delivering and the potential impact on your client, is it short-term or could a claim be received many years into the future.
As you usually buy an Indemnity policy for all your work on an ongoing basis, this may not be an issue, but if you ever think of moving out of self-employment or retiring you need to consider how long you should purchase “run-off Professional Indemnity Insurance” to make allowance for work any future losses when may be received.
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