A Guide to Professional Indemnity Insurance: What You Need To Know

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Alison Wild, Marketing Business Partner of Towergate Insurance, tells Value Walk’s readers why going without Professional Indemnity Insurance is risky business.

As the UK’s workplace becomes increasingly complex with technological and cultural changes, the potential for professional negligence and mistakes at work grows. As a result, businesses are susceptible to greater scrutiny and in the worse cases, vulnerable to legal action.

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Due diligence and industry knowledge can only go so far to prevent claims being made against services. Even for the most established organisations, failure to prepare for the cost of defending a claim can be catastrophic.

Professional Indemnity Insurance (PII), can provide a simple and effective way of ensuring your business is prepared for the financial consequences of negligent advice, whether the claim is valid or not.

What is professional indemnity insurance (PII)?

Put simply, professional indemnity insurance is a policy that pays the legal defence fees or damage costs awarded to the claimant if a customer alleges that you provided incorrect or inadequate advice and/or services.

Who is PII for?

Whether you work in a regulated industry or offer highly-specialist consulting that comes with a degree of risk, PII should be a key consideration of any person or organisation offering advice, knowledge or skills as part of their services.

Though not a legal requirement for all businesses, there are several regulated industries that stipulate services must be covered by professional indemnity insurance to practice.

Sectors mandated to take out professional indemnity insurance include:

  • Financial advisers
  • Solicitors
  • Architects and Chartered Surveyors
  • Accountants
  • Healthcare professionals

Nevertheless, even for those in unregulated sectors, the risk of having no cover can be unrepairable. Taking out a professional indemnity policy can help protect the livelihood of anyone providing consultancy, advice or service on behalf of a client, including those working in:

  • IT and Software Development
  • Advertising, marketing and creative
  • Engineering
  • Translation
  • Education and training

What does professional indemnity insurance cover?

Depending on the profession, professional indemnity claims can vastly differ.

From spelling mistakes on an advert, to losing a document, provision of wrongful advice or even the simplest of mistakes can see your company facing legal action.

In the event that a claim against you is made, professional indemnity insurance will cover you for:

  • Professional negligence

Legal Defence costs for allegations of wrongful advice or errors and omission in the provision of a professional service.

  • Losing documents or data

If a client’s business documents and data are lost and there is a risk to trade secrets or sensitive data falling into their competitors’ hands.

  • Defamation: libel and slander

Should someone feel that you have written or said something defamatory about them that is also false.

  • Breach of copyright or confidentiality

Occurring due to the unauthorised use of another’s intellectual property.

Do I need PII if I’m self-employed?

If you provide professional advice then, as a self-employed person, you still have a risk exposure and a requirement for PII. For some professions – i.e. Accountants, Chartered Surveyors and Legal Practices PII is either a requirement of the Professional Body or a compulsory legal requirement. However, where you give professional advice, then it is prudent for you to arrange PII insurance. Remember, that claims can take some time to arise from past work and it is important to seek advice to ensure that you are adequately protected.

Even if you’re a sole trader with a limited budget, the legal costs of defending a claim can ruin a business. With a number of providers on offer, cover can be less than you think and could save your business in the long run.

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