A guide to Professional Indemnity insurance

If it has been recommended you have professional indemnity, but you're a little unclear about exactly how this insurance works to protect your business, you may appreciate this simple, easy-to-understand beginners guide written by leading specialist insurer Hiscox.

What is Professional Indemnity insurance?

Professional indemnity insurance protects your business from financially crippling and often reputation-damaging claims by dissatisfied clients. Even the most respectable companies can find themselves in dispute with a client over a mistake. Some of the danger areas your business could be exposed to are:

  • Negligence: or breach of duty of care;
  • Intellectual property: unintentionally infringing on others’ copyrights, trademarks, broadcasting rights, any act of passing off;
  • Loss of documents/data: damaged, lost or stolen data and documents belonging to your clients, and
  • Dishonesty: liability arising from the theft of your clients’ money.

How will Professional Indemnity insurance protect my business?

Professional indemnity works in a number of ways:

  • It will cover you if you make a mistake in the professional services you have provided that leads to a dispute with a client. If the dispute becomes complicated and nasty, the insurer can defend your claim – right through to the High Court, if necessary. Even if you lose, the policy will still cover you for any damages you then become liable for, subject to the level of cover your business is insured for;
  • The policy will also cover the cost of fixing any mistake on your part, thus avoiding a larger claim being made. Fixing a problem before it becomes an even bigger problem is simple common sense and helps all parties avoid wasting considerable time and resources on long and drawn-out litigation, and
  • You are also protected if you lose or damage any clients’ documents in your care or if one of your employees is involved in the theft of a clients’ money.

Other benefits include:

  • Direct access to specialist claims staff and advisers who understand your industry;
  • Access to specialist legal teams to defend a claim in court;
  • Avoiding large legal costs your business would otherwise have to pay for, and
  • Protecting your reputation as well as the bottom line

How much Professional Indemnity cover do I need?

No two businesses are the same and there is no single amount of cover that suits all. Nobody knows your business and the exposure it faces better than you. You should always to buy as much cover as you can reasonably afford.

Often, your client will set a minimum limit of the indemnity they require. This can depend on the specific nature of the services you’ve been contracted to provide, or they could have a set limit for all their service providers. For example, many UK government departments will require their contractors and consultants to have at least £5m of cover.

It’s also worth considering taking retroactive cover for work already completed before the policy commences. By doing this, you will have all bases covered.

Further resources

Do sole traders need professional indemnity insurance? – For those who work in sectors where costly mistakes can happen it could make all the difference.

What insurance do you need for a small business? – Clear advice and guidance on the types of insurance that are relevant to your needs.

How I put PI insurance in place for my bid consultancy company – A case study.

Related Topics

Professional Indemnity

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