Professional indemnity insurance is important to protect both professionals and their clients against the financial repercussions of poor or negligent advice, service or designs. If a professional does a poor job and a client loses money as a result, whether real or perceived, the client can sue the professional. Professional indemnity insurance can be used in these cases to help cover the legal costs associated with defending a claim as well as cover any compensation owed to the client to make up for the loss.
Professional indemnity insurance can also help defend a frivolous claim in cases where a professional has done nothing wrong.
Legal defence costs can easily reach into the thousands of pounds, and compensation payments can reach tens of thousands, hundreds of thousands or even more depending on the situation. As a result, any person or business providing professional advice, designs or service should consider buying professional indemnity insurance. And in many cases it’s required by an industry or regulatory body in order to work or as a condition of membership.
What is professional indemnity?
Professional indemnity essentially means that a professional has an obligation to provide advice, designs or service that does not cause a financial loss for their clients.
What is professional indemnity insurance coverage?
Following onto the definition of professional indemnity, it’s quite straightforward to answer the question ‘what is professional indemnity insurance?’ Professional indemnity insurance protects professionals who might be negligent in their duties and whose work, as a result, causes an actual (or perceived) financial loss to their clients.
The actual cover afforded by a professional indemnity insurance policy provides protection in the terms of funding for legal expenses to defend against a claim as well as compensation that is payable to the client.
Without a policy, the professional or business would be responsible for covering these costs themselves.
Professional indemnity insurance is required by certain regularity and industry bodies in the UK. In particular, individuals and businesses working in accountancy, law and finance will be bound by certain minimum requirements regarding professional indemnity insurance (PII).
For example, all firms authorised by the Solicitors Regulation Authority must have a valid professional indemnity insurance policy in order to practice. And the Financial Conduct Authority has a different set of rules regarding PII requirements.
Where to buy professional indemnity insurance
Professional indemnity insurance policies can be found through a number of sources, primarily: business insurance companies that sell directly to customers, business insurance comparison sites and business insurance specialist brokers.
Examples of direct-to-customer business insurers include Hiscox, Direct Line and AXA. Business insurance brokers include the likes of Towergate and PolicyBee. Comparison services like the one offered by NimbleFins and SimplyBusiness can connect you with large and small providers, a mix of both insurance companies and specialist brokers.
With the business insurance being hard to understand in some cases, many businesses use a specialist broker to find the right policy. This is especially true for niche or hard-to-insure businesses.
Both brokers and insurance agents can help a business determine the types of cover they need as well as the level of insurance they should purchase. These experts will have a sense of the risk different types of businesses are exposed to, and can be of great help to a business.
Since business insurance can be complicated, it’s not always possible to purchase it online. Where an underwriter needs more information or a business owner has questions, it can be better to buy a policy over the phone. That said, many processes start online, with a business owner filling in an online quote form. From there, business insurance providers contact the business owner to complete the application and proceed with a quote.
Going direct vs using a broker
While it is possible to directly apply for quotes with an insurance company, it is worth remembering that the insurer’s customer service staff works for the insurance provider and only provide quotes and information for their employer’s products. As a result, going direct might not result in the best quote or product for a business.
On the other hand, a broker works for the client to guide a business owner through the risk analysis to work out the level of cover needed and then go to several insurers to find the best price. However, for this service a broker does charge fees and, it’s important to note, earns a commission from the insurance company. Be sure also to ask the broker their fees. It’s also good to ask how much work they do for businesses in your industry in order to help determine their level of expertise.
If a business contacts multiple brokers, it’s wise to enquire which underwriters they will get quotes from. This is because it’s better to avoid many brokers pinging the same underwriters for a quote for a business.