Who Needs Professional Indemnity Insurance?
Professional indemnity insurance is needed for individuals or businesses that offer a service or professional advice. That could be sued if that advice or service sees a client lose money.
There are no laws that require a business to take out professional indemnity insurance. Still, it is strongly advised in some industries such as for architects, designers, consultants, lawyers, those working in finance, some tradesmen and more. Generally, it would apply to professionals who could cost their clients a significant financial loss should there be a mistake. In fact, some trade bodies require their members hold a minimum limit of insurance.
Architects, for example, could draw up plans with an error in design. And if it was only discovered part way through construction, it could be incredibly costly to not only halt operations but re-do some of the works.
Some customers may demand professional indemnity insurance is taken out as part of the terms of a contract.
If a business does any of the following in its day-to-day practice, it is worth considering professional indemnity insurance:
- Handles sensitive data.
- Gives expert advice.
- Has access to private client information, or a client’s computer system.
- Carries out a trade with a design element that is open to scrutiny (e.g., They could be accused of not following or interpreting the brief correctly).
- Is exposed to claims of professional negligence (e.g., making a mistake that could cost a client money, giving incorrect advice or failing to deliver what was promised).
As well as architects, there are a number of professions where professional indemnity insurance is strongly advised, including consultants, financial advisors, insurance brokers, accountants, construction workers, tradesmen, solicitors, planners, surveyors, healthcare professionals, risk management, interior design, other designers, and engineers, coaching, training, education and more.
A number of other industries may consider themselves exposed to claims for failing to deliver what was promised, such as event planners, PR, marketing and advertising agencies, and software developers.
What is the purpose of professional indemnity insurance?
The purpose of professional indemnity insurance is to protect a business against compensation claims from a client who has lost money as a result of the advice or service given.
When a business sells itself as an expert in the field, it covers, a client will trust the advice or service provided and usually follow it. But if the business is unable to meet the client’s standards, they could be held liable for a loss of money or harm to the business or people.
Professional indemnity insurance funds the legal expense of hiring solicitors to represent the business and any damages awarded if the defendant is found to be liable. It won’t cover fines or penalties, however.
A business could be accused of breach of confidentiality, defamation, loss of documents or information, negligence (e.g., running over budget or giving incorrect information), property damage and bodily injury.
The insurance removes any threat of risk to the business, with an insurance company taking on that burden for a small fee. In one unusual UK case, the Government announced it was creating a professional indemnity insurance scheme to take on the risk of surveyors reviewing tall buildings’ walls. Surveyors have been reluctant to carry out External Wall Surveys on tall buildings because they could not secure professional indemnity insurance.
With cladding now a major security concern in the UK in the wake of the Grenfell Tower fire, insurance companies have been reluctant to take on the risk in case a surveyor gave the wrong assessment. The potential cost of giving out the wrong advice could be a matter of life and death. And tens of millions of pounds in compensation.
Without professional indemnity insurance, there has been little assessment of buildings, and homeowners have been unable to buy, sell, or re-mortgage their properties. This announcement means the surveyors can get on with their important work without the fear of giving the wrong advice.
The safety net also means businesses can offer services without having to factor any potential claim into the price they are charging. This allows a business to operate more competitively.
Does the law require professional indemnity insurance?
Professional indemnity insurance is not required by law, but some industries may find it is a barrier to entry to a professional body.
The insurance may also be demanded as part of the contract signed between a business and client.
Do I need professional indemnity insurance if I work from home?
Professional indemnity insurance purely covers the advice or service you give, whether you work from home or not.
If your business is run from home, you may want to consider additional insurance options such as public liability insurance. This covers the legal expenses and damages awarded if a member of the public or other third party suffers an injury or has property damaged at the business premises. Or employers’ liability, which covers work-related employee injuries or illnesses for which the business is to blame.
It is also advised to tell your home insurance provider that you are working from home. It is not always the case that a policy will need to be updated, but it can become invalidated if your provider is not made aware.
Home insurance might cover your public liability but does not cover professional indemnity. So if you provide a service or advice that could be at risk of a negligence claim, then professional indemnity insurance is recommended.
Who can get professional indemnity insurance?
Any business or individual can get professional indemnity insurance, although it is not always necessary and it is not a legal requirement.
A business of any size may feel they need professional indemnity insurance. It could be a large multi-national business that deals with million-pound contracts or a freelance individual with just a handful of clients. If they sell their professional advice, knowledge or service, they may want to consider professional indemnity insurance.
Professional indemnity insurance is a specialist product. Providers will want to know a number of details about the business and its work to make a risk assessment and determine a price. It can also be difficult for a business or sole trader to know all the risks – and the cost of those risks – themselves. Therefore many use the help of a broker to guide them through the process.
While many providers are business specialists, some household names offer professional indemnity insurance, such as Direct Line and AXA.
It is understood there are only a small number of underwriters for professional indemnity insurance. So if using more than one broker, it is recommended to ask for the names of the underwriters they will be using to avoid getting the same quotes back.