Professional indemnity insurance, also known as professional liability insurance or PI insurance, is an insurance policy for business owners. It represents a rapidly growing sector in the insurance market. Read our guide to learn how getting a professional indemnity insurance cover can help your business from unexpected scenarios and costs.

Professional Indemnity Insurance Definition

Profession indemnity insurance is an insurance cover that protects businesses against customers not being satisfied with the products or services provided. It covers any cost of having to compensate clients for loss or damage caused by unsatisfactory products or services. Professional indemnity policies cover, for example, negligence, breach of professional duties, or errors or omissions. It can provide financial protection for professionals to allow them to work without the risk of significant financial loss caused by a mistake.

Who needs Professional Indemnity Insurance?

Professional indemnity insurance provides a helpful safety net for anyone offering their knowledge, skills, or advice through their business. If this applies to your company, you should consider getting professional indemnity cover. Without professional indemnity insurance, businesses are much more exposed to risk.

A lot of professional institutes and bodies also require their members to get some form of professional indemnity policy. Certain professions require professional indemnity insurance. This includes solicitors, accountants, architects, chartered surveyors, financial advisers, and some healthcare professions. If your business is dealing with sensitive information or anything priceless belonging to a client, professional indemnity insurance is always recommended.

In less regulated professions, such as IT, marketing consultancy or software, PI insurance won't necessarily be a requirement for service providers. However, it is still advisable for businesses and freelancers alike to get it.

Larger companies or public sector bodies may also require any contractor working with them to have public indemnity insurance.

What Does Professional Indemnity Insurance Cover and when is it required?

Policies will vary, but, in principle, PI insurance protects your business against any claims for loss or damage made by customers of third parties resulting from unsatisfactory or negligent services provided. It will protect your business against a number of potential risks, including:

• Professional negligence: This refers to a professional failing to perform their responsibilities to a required standard or breaches their duty of care, resulting in financial loss or physical damage to their customer. An example would be if you were a tax advisor and failed to inform your client about a significant tax relief available to them which would cause them considerable financial loss.
• Defamation: This refers to a professional making a false statement about a person or company which causes damage to their reputation. Whether you mean to or not, if a client feels you said something libelous your business will be better off with professional Indemnity Insurance
• Breach of confidence: This refers to a professional sharing information that they should keep secret. Confidential information is divulged to a third party to the detriment of the owner of the information.
• Breach of copyright: This refers to a professional using a copyrighted work without the explicit permission of the work's owner. If your organization uses and shares material produced by a third party is at risk of breaching copyright.
• Loss or damage of documentation: This refers to the loss of or damage done to any documentation while you or your business are in charge of it.
• Employee cover: This refers to mistakes made by your employees - even the most trusted staff can make mistakes, so make sure employees acting within the scope of their professional duties are covered.

What Happens If I Don't Have professional Indemnity Insurance?

If you do not have PI insurance, you are at risk of having to be liable for any costs relating to a claim made against you by a client or third party. These costs can be significant, as they may include legal costs and compensation. Claims against you can even be made after the professional services were delivered through eg a short-term contract.

While you can ensure you and your team do your work diligently to minimize mistakes, completely avoiding them is impossible. If you find yourself personally responsible for paying legal fees, you may encounter serious problems with your business's financial health and ultimately end up in debt.

How Much Professional Indemnity Cover Do I Need?

This will depend on your needs. When making a decision, consider several factors, such as your business's size, whether your industry is regulated, and the size of your client companies. A good first step can be to think about a 'worst-case scenario' you would require the cover in. Consider the financial power of your clients and the size of a potential claim they could make against you. You should also consider any legal fees that may incur, considering that legal fees are more expensive the more complex legal claims are.

If you are working in an industry where PI insurance is required by, for example, your professional body, there is likely to be regulations determining the amount required.

Professional Indemnity Insurance FAQs

• Is professional Indemnity Insurance a legal requirement?

While professional indemnity insurance is not a legal requirement for all businesses, some professions (eg architects, solicitors, or financial advisors) are required by their professional bodies to have professional indemnity cover. Some clients might also make PI insurance a contractual requirement.

• Is professional Indemnity Insurance tax deductible?

PI insurance is in fact tax-deductible as business insurance is an allowable expense.