One of the most common questions we’re asked about professional indemnity insurance is: how much is it?
The words ‘piece of string’ and ‘how long’ leap to mind here.
It’s a tricky one to answer quickly because there are no hard and fast rules. How much you pay depends on a lot of things.
But, professional indemnity insurance is just like any other insurance. The price reflects the risk.
So what’s ‘high risk’? Or ‘low risk’? How do you know if that’s you? Why does it make a difference to what you pay? And what can you do about it?
Things to bear in mind
Insurers use your answers to get the facts about your business and work out how much to charge.
To do that they consider:
- Your annual turnover and fees. Generally, the higher this figure, the more your insurance costs. It’s an indication of the value and volume of business you do. It’s simple numbers really: the more work you do, the greater the chance of a claim; the greater the chance of a claim, the more insurers charge.
- Contract values. High value contracts mean high settlement figures if things go wrong. Professional indemnity insurers consider both your contract fee and the value of the contract as a whole. Let’s say you charge £3,500 to work on a contract worth £50m. If there’s a possibility (however slim) your negligence could scupper that contract, you’ll pay more to reflect the risk of being sued for the whole £50m.
- What you do. The industry you’re in, the advice you give, the companies you work with and the service you offer all make a difference. Some professionals have a fundamental, higher exposure to risk than others. This could be because, historically, claims are common or because the potential financial consequences of a claim make insurers nervous. For example, premiums for a training consultant (low risk) start at a much lower level than those for a structural engineer (high risk). This is because training consultants are less likely to be sued for negligence in the first place and, if they are, the value of the claim will be much lower. Either way, the insurer is looking at a safer bet with the training consultant and charges them less.
- The level of cover. The easiest one to fathom. Fairly obviously, £5m cover costs more than £50,000 cover. If there’s a claim, the insurer could face a bill for millions rather than thousands. They’ll charge you more to make sure they can cover it, and to reflect the extra exposure.
- You. The person or people behind the business. Are you a ‘professional professional’? Do you have relevant experience and qualifications? Do you have signed terms and conditions with every contract? How is your business structured? What risk management do you do? Insurers are by no means moral guardians but they do have an interest in who – as well as what – they’re insuring.
What you can do
These things individually and collectively make a difference, and have a bearing on an insurer’s view of what they’re insuring and how much to charge.
Bear in mind that insurers are a cautious bunch and they like a bit of hand-holding. Anything that makes them more comfortable with a risk is a good thing.
If you can, always demonstrate your competence and show them that you’re doing your bit to avoid claims wherever possible.
You’ll find it benefits you as much as them.