Is Professional Indemnity Insurance a legal requirement?
Professional indemnity insurance is not a legal requirement, however the consequences of not being covered can be severe.
If your business provides advice or services regardless of the industry or business entity, you could be liable for losses incurred by your clients if your advice or services were not adequate. Being sued can be extremely costly with legal fees, damages, compensation and loss of earnings to consider. Professional indemnity insurance is designed to cover these costs, and give you peace of mind.
Despite not being required by law, professional indemnity insurance is mandatory for members of some professional bodies and is required by some regulators. This means it’s effectively compulsory for some professions, such as; solicitors, financial advisers, accountants, architects and some healthcare professionals.
When you’re figuring out whether professional indemnity insurance is compulsory for your business, check the guidelines from your regulator and your professional body and also check your client contracts.
How much cover do I need?
The level of cover your business needs will depend on a number of factors, such as the nature of your work, type of clients you service etc. If you work with large organisations in heavily-regulated industries, then your professional indemnity requirements are likely to be higher.
The first step to calculating how much PI cover is necessary is to find out what levels of cover your clients would expect. After all, this type of policy brings confidence to them as well as you. A minimum threshold may also be specified by professional bodies or regulators.
Otherwise, consider how much it might cost to rectify a worst-case scenario disagreement, including legal fees, damages, compensation and loss of earnings incurred. This number can provide a guideline for how much professional indemnity insurance you need.
You should also consider your own business requirements in a worst-case scenario eventuality. This could be whether your business would have enough available cash-flow, or sufficient staffing capacity to rectify big mistakes. If not, you may benefit from a higher level of PI cover.
Some professional bodies, regulators and even clients may require a minimum level of professional indemnity insurance before they’ll consider working with you, so as a minimum you’ll need to at least match this level.
Who does Professional Indemnity Insurance cover?
Professional indemnity insurance covers anyone that could suffer loss as a result of your businesses activities.
For example, you’re passing on confidential client data but you accidentally copy the wrong person into the email. Or you’re an I.T consultant designing a client database but you make a mistake in the plans and later the company owned-data is lost. In both cases, you could be sued by your client. The compensation payment will usually take into account the financial loss that the client has suffered due to your mistake.
Bear in mind, however, that professional indemnity insurance does not cover you for the cost of any reputational damage that the mistakes have caused.
How much does Professional Indemnity Insurance cost?
The total cost of professional indemnity insurance is primarily dependent on the level of cover you choose. The best way to decide how much you will be spending on a professional indemnity policy is to find out what level of cover you need. Think about the worst-case scenario and what the maximum amount you’d need to pay out in legal fees and compensation could be. The larger the size of your clients and the higher the risk, the more cover you will need.
The easiest way to find out the cost of PI insurance for your business is to run a quick quote online.
When you’re buying insurance for your business it’s really important that you answer all questions accurately and that you choose a high enough level of cover so that you’re fully protected if you come to make a claim.
