Important but often misunderstood, professional indemnity cover is one of the key types of business insurance. Perhaps you’re unsure whether this is a cover you need, or you’ve got some uncertainties about how and why you might make a claim on a PI policy.
To help, business insurance provider Simply Business have picked out five common myths and aims to set the record straight:
1. “Professional indemnity cover is a legal requirement”
In fact, the only type of business insurance that’s legally required is employers’ liability insurance. If you have one or more employees, you could be fined up to £2,500 a day if you don’t have an EL policy in place.
On the other hand, insurance covers like professional indemnity and public liability insurance are not required by law. However, there are some professional bodies and regulators that require their members to have professional indemnity insurance. This includes solicitors, accountants, financial advisers, architects, and chartered surveyors.
Certain clients will also require you to have a certain level of professional indemnity insurance, for example governments and local authorities. Other organisations may also specify a level of insurance cover in their contracts.
2. “It’s probably not relevant to my business”
As we’ve mentioned, there are some professional bodies and regulators that make professional indemnity insurance compulsory for the professions they regulate. But even if you’re not running a business like a law firm or an accountancy, it could still be an important cover to consider.
Professional indemnity insurance is designed to offer protection for businesses that give advice, handle client data, or deal with intellectual property. It can cover you for things like negligence, unintentionally breaching copyright, or for losing client documents.
Obviously this is quite a wide remit, and if you run a business that works closely with clients or that offers some kind of professional service, it’s likely to be useful. It’s a popular cover for businesses that do web design, IT consultancy and journalism, as well as the trades we’ve already mentioned.
3. “You only need it if you do shoddy work”
It’s true that this is a cover that’s primarily designed to cover you in the case of making a mistake in your work.
But there are two important aspects to consider here. Firstly, it’s possible for any business, no matter how professional and experienced, to make a mistake. You could offer advice that seems to be watertight at the time but later turns out to be faulty.
Secondly, and perhaps more crucially, your client could accuse you of making a mistake even if you haven’t actually done anything wrong. If you’re wrongly blamed for the financial loss of your client, then the cost of defending yourself against a compensation claim could be really high. This is where a good professional indemnity policy really comes into its own: it can cover legal costs as well as compensation claims, up to the limit of your policy.
4. “I’d only need a small amount of cover”
Both legal costs and compensation payments can be eye-wateringly high, which is why professional indemnity cover limits reach into the millions of pounds.
It can be difficult to estimate how much cover you need, but it’s a good idea to think about the type of clients you work with, and what kind of financial loss they could suffer if something went wrong.
For example, if you run an IT consultancy business and you support a company with a call centre that manages hundreds of sales calls a day, a mistake in your work could potentially cost the company a huge amount of money in lost sales. Or if you’re an architect and you work on high-value construction projects, then a mistake in the plans that leads to a problem with the building could be very costly to fix.
On the other hand, you can opt for a lower cover limit if the scope of your work is more modest.
5. “Buying PI insurance is a hassle”
It’s really quite simple. You can buy your professional indemnity policy online in a few minutes, and you can choose to add on things like public liability cover and legal expenses insurance to create a comprehensive business insurance policy.
It’s important that you provide accurate information, but most of the questions you need to answer are quite straightforward.
We’ll need to know details about the type of business you run and where you’re located. You’ll also need to choose the level of professional indemnity cover you want, ranging from £50,000 to £2 million.
There are a few other things that we sometimes need to check too, like the kind of clients you work for and if you belong to any professional bodies.
Once we’ve got all the information we need, we can usually show you a range of quotes from our panel of providers. You can then pick the best policy for your business.