16th January 2020

Professional Indemnity Insurance Guide - Non Regulated Firms

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What is Professional Indemnity Insurance?

Professional Indemnity Insurance (PI or PII) is designed to protect an individual or a business in the event of a customer or client making a claim for financial loss against them as a result of non-performance, breach of duty of care or alleged professional negligence.

What is a ‘claims made’ policy?

Professional Indemnity Insurance is a ‘claims made’ policy meaning that the policy has to be in force when the claim is made, not when the claim occurred. Therefore, it is important to obtain cover for historic activities undertaken when incepting a new policy.

Which firms need to purchase PI?

In simple terms, any business providing services to third-parties should consider having PI in place. Even if it is not a compulsory requirement, appropriate insurance protection will help in protecting the value of a business, should the unfortunate event of a claim occur. This is particularly pertinent in an increasingly litigious business environment. Given defence costs and expenses are part of the cover, even a spurious claim can be defended and insurers’ involvement can assist in preserving valuable management time and expenses. A customer or client may insist that you have PI (and any other appropriate insurance) in place, as a contractual condition of doing business with them.

What limit of liability is required?

There is no set rule as to how much cover is enough. However, it can help to look at the size of your largest contracts (including the total value of the work to your client) and work back from them to understand your potential exposure. It is also useful to look at any minimum requirements required by any contractual agreement. Notwithstanding the above, your insurance broker should be able to help to provide industry benchmarking information.

We do not hold client money, do we still need PI?

Any business that provides advice or a professional service to clients should consider PI Insurance even if they do not hold client money. Unfortunately, mistakes can happen and disputes can arise, which can cause unwanted stress and worry, bad publicity and potentially significant damage to the reputation of your business. PI Insurance can help take away some of this stress and firms can benefit from specialist legal advice to help defend a claim.

How much does it cost?

The cost of PI can vary greatly and depends on a number of factors. It is best to speak to a specialist provider, which should be able to give an estimate of cost based on a few headline data points. Q15 gives more information on the rating factors used by insurers.

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