If your company offers professional services or advice to other companies, professional indemnity cover, while not compulsory, is something you should seriously consider. This is because it covers you against claims made by clients for any loss they’ve suffered as a result of the advice that you give or the work you’ve done.
Is professional indemnity insurance mandatory?
Legally, companies don’t need to take out professional indemnity insurance. However, many trade bodies and regulators make holding insurance a condition of membership. You might also find your clients include professional indemnity insurance requirements in their contracts, especially if you are handling confidential information and client data.
Examples of businesses that might need professional indemnity insurance include:
- Financial Advisers
- Personal trainers
- Healthcare professionals, e.g. private doctors and nurses.
Even if you aren’t required to take out professional indemnity insurance, holding it sends a message to potential clients that they and their business are protected if something goes wrong.
What does Professional Indemnity Insurance cover?
Professional indemnity insurance covers compensation claims made by clients if you make mistakes that impact their business, including:
- Professional negligence
- Confidentiality breaches, including those by third parties carrying out work on your behalf or who you’ve shared information with
- Loss of data or documentation
- Reputational damage (to your client)
- Financial loss as a result of a mistake made or advice given
- Personal injury
- Property damage
- Legal fees resulting from a claim.
Professional indemnity insurance doesn’t normally cover third-party compensation for injuries unless these occurred because of your negligence. Third party injuries would be covered instead by public liability or employer’s liability insurance depending on the accident or injury.
Professional Indemnity Insurance cover dates
You are covered by professional indemnity insurance from the first day you take the policy out, even if you transfer your policy to another insurer. This is known as the retroactive date. If you carried out work before this date and your client makes a claim, you will not be covered.
The initial date you took out professional indemnity insurance is only valid as long your cover is uninterrupted.
What level of Professional Indemnity Insurance do you need?
The type of business you operate, the projects you work on, your turnover and client numbers will determine the level of insurance you need. Talk to your insurer about this before making a decision. Generally, you’ll be able to select between £50,000 and £5 million worth of cover.
If you are part of a trade association or registered with a regulator, they may set the minimum level of cover you need to take out. For example, the Financial Conduct Authority (FCA) requires its members to hold at least £1 million of cover while members of the Architects Registration Board (ARB) must hold policies of at least £250,000. Check this before buying a policy.
How much does Professional Indemnity Insurance cost?
The cost of professional indemnity insurance will vary depending on the type of work you do and the level of cover you choose. Insurers use this information to calculate the level of risk and likelihood of your making a claim. Make sure you answer all questions accurately; not doing so could invalidate your policy.
Many insurers include professional indemnity insurance in their general business insurance policies. Check whether this is the case before taking out a separate policy.
Other types of business insurance
In addition to professional liability insurance, there are others you may need for your business, including:
- Public liability insurance: Important for any business that meets clients face-to-face or works with the general public. This covers you for accidental injuries and property damage.
- Product liability insurance: Covers you for accidental injury or property damage related to a product you have manufactured, supplied, installed, or maintained.
- Employers’ liability insurance: This is the only insurance that is mandatory under the law. It covers your employees when they are sick or have had an accident while at work.
Look for policies where product and liability insurance are combined as this could save you money.
Check if you class as an employer under the Employers’ Liability (Compulsory Insurance) Act 1969. If you do, you will need to take out insurance.
- Business property insurance: Covers the loss or damage to your premise, IT equipment, other equipment and tools.
Business property insurance is generally offered as a comprehensive policy that includes buildings, contents, equipment, tools and any stock you hold. However, these can be provided separately if needed by some insurers.