Professional Indemnity Insurance Explained

Professional Indemnity insurance (PI) AKA Professional Liability Insurance (PLI) or Errors and Omissions (E&O) is required by many and understood by few. This guide will explain what professional indemnity insurance is and how and when it might apply to you or your business.

What’s in the PI guide?

Professional indemnity explained, Towergate

What is professional indemnity insurance?

Professional indemnity insurance (PI) is type of liability insurance designed to protect businesses and individuals who provide advice or expertise to third parties.

Whether the client is an individual or a business, a client may take you to court if they are unhappy with the advice or professional service, you or your organisation has provided.

Professional indemnity insurance therefore covers the cost of your legal defence, along with compensation you may need to pay to the client following a claim made against you.

Does professional indemnity insurance just cover negligence?

Though in many cases PI claims are down to negligence within the business, there are many forms of this. A professional indemnity claim can arise from:

  • Loss of client documents – if your system is hacked

  • Intellectual property – breaching copyright laws

  • Dishonesty – of your employees

  • Defamation – damaging a client’s reputation

Do I need professional indemnity insurance?

Professional indemnity insurance is designed to protect both businesses and individuals from who offer advice, knowledge or skills as part of their services. Some professions are required to have PI in place by regulators in their industry:

Professional indemnity insurance, Towergate
  • Accountants

  • Financial Advisers

  • Solicitors

  • Architects

  • Chartered surveyors

  • Health care professionals

Other professions, though not required to have PI by law or regulation, still choose to take out insurance so as not to suffer the impact a financial loss can following a claim.

What does professional indemnity (PI) insurance cover you for?

Your Legal Defence-If a client does bring a claim against you, you’ll need to defend yourself in court whether their claim is justified or not. PI will cover the legal expenses associated with the case. If the client were to win the case, PI would also kick in to cover the compensation awarded to the claimant.

Compensation-As we mentioned, if a client wins their case against you they are likely to be awarded the sum of money they lost as a result of your advice. In addition, they may be awarded compensation. Both of these are covered by a PI policy.

Run off insurance- If your firm is ceasing to operate, you may still have a claim pop up unexpectedly in the future. Run off insurance is to ensure these claims are still covered and you are not left liable.

How much professional indemnity insurance do I need?

Professional indemnity insurance is often sold in varying limits; insurers can offer options from £1 million to £10 million and upwards in some cases. To decide how much professional indemnity insurance you need you should consider:

  • The size of your business

  • The size of the clients you’re dealing with

  • How much it might cost to defend yourself in court

  • Is your industry regulated?

Naturally if you’re a larger business with large clients, you might want to consider a higher limit for your PI. An individual however, with smaller clients and subsequently less associated risk, may only need £1 million of cover. If you’re not sure, you can call our team for guidance on 0330 123 5741.

If you’re in an industry which requires you to have PI due to regulations, it’s likely there is a recommended amount of cover associated with your profession. You can check this with your regulator to ensure you’re covering the amount required of you.

How much does professional indemnity insurance cost?

When we say professional indemnity insurance, there are a whole host of different professions PI can cover and a whole lot more variety in terms of scale of some businesses compared to a self-employed individual. Therefore, predicting the cost of PI is extremely difficult without understanding the nature of your business.

It’s best therefore to speak with a specialist insurance provider like Towergate, who can go out to the market and get you the best deal.

Other Types of Liability Insurance

Public liability insurance- Cover for claims made by third parties (members of the public) if they are injured or have their property damaged during the course of your work.

Employer’s liability insurance- A legal requirement if you have employees, this cover protects you if someone you employ claims compensation due to an accident or illness which has arisen as a result of their employment with you.

Products liability insurance- If a member of the public is injured, becomes ill or has their property damaged as a result of a product you have manufactured, supplied or distributed; you could be liable. Products liability will cover compensation and your legal defence.

Want to find out more about our Professional Indemnity Insurance?

More details