Do you need professional indemnity insurance?

Discover how to protect your start-up against costly ‘business injury’ claims

Professional indemnity insurance should be a top priority for providers of professional services wishing to protect themselves from crippling compensation claims.

Architects, solicitors, accountants and thousands of other professionals provide services and advice upon which their clients depend. As an experienced professional, your skills can be relied upon. But sometimes, unavoidably, things go wrong.

If you make a mistake during the course of your work, there is a significant possibility that it could cause some financial loss to your client. You’re hired by a client on the basis that your advice is sound and, as a result, you are likely to be held liable for any costs incurred as a result of errors or omissions in the provision of your services.

How can it help?

Professional Indemnity (PI) insurance can help protect you against claims made by clients who have suffered a loss of this sort. This so-called ‘business injury’ can frequently result in large compensation claims, and the costs of fighting such a claim are also hefty.

A good Professional Indemnity policy will protect you against the cost of the compensation claim itself, as well as helping to cover the cost of defending the claim. This might include legal fees, for which you would be held liable in the event that the client’s complaint is upheld in court.

Is it a legal requirement?

In many cases you will be required to take out Professional Indemnity cover. Some professions are legally obliged to have it. Accountants and financial advisers cannot legitimately operate unless they are sufficiently covered. Other professionals are required to have such insurance as a condition of trade association membership.

Just as important, though, is the way in which your business is perceived by potential clients. Professional Indemnity insurance can mean the difference between securing a contract and losing out to a competitor. Most businesses will expect you, as a provider of professional services, to be sufficiently insured. If you fail to take out Professional Indemnity insurance, you could miss out on vital jobs.

Aside from all of these concerns, Professional Indemnity insurance is simply good business sense for all those involved in offering professional services and advice. It is impossible to safeguard your business against every potential mistake but you can safeguard it against the cost of those mistakes.

Avoiding a claim

Even with insurance, it is of course preferable to avoid claims being made against you. Amongst the most important ways of preventing claims is to ensure that your contracts are watertight. Your arrangements with clients should be clearly articulated, without the possibility of multiple interpretations. Claims can be avoided when both parties have a clear idea of what is expected of them.

It is also vital that you keep detailed records of your contracts and the work you perform for your clients. These records will be invaluable in the event that a claim is made, and should help with the prompt settlement of a dispute.

How has Covid-19 affected public indemnity insurance?

Unsurprisingly, the professional indemnity insurance has been somewhat transformed by the Covid-19 pandemic.

It’s still possible for a small business to take out a new policy, but the process has become much more stringent. You might find that an insurer requires you to fill in a questionnaire providing details of the short and long term impacts of the pandemic upon your business.

Some insurers are even excluding Covid-19 from their policies, meaning you can’t make a claim relating to impact of the virus on your business. On the flip side,  many insurers have responded to the ‘new normal’ by adapting their policies and strategies.

Whether you’re taking out a new policy or renewing an existing one, we’d recommend following a few simple guidelines:

• Start the process early – everything is taking much longer to process at the moment, and you want to minimise the time you aren’t covered by a professional indemnity policy (ideally to never) so we’d advise requesting a proposal firm from your broker up to 12 weeks in advance
• Check if your broker is offering renewal terms this year – as well as whether they are planning to increase costs. Also consider using other brokers to maximise your protection
• Provide a thorough overview of your business – it’s never been more important to make sure you’re reporting all the most up to date info and figures to your broker, as well as providing in-depth details about any high-risk work with clients and overseas work in high-risk areas