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A quick guide to professional indemnity insurance

23/02/2019

The right way Un ragazzo chiamato Bi

A helping hand

Buying professional indemnity insurance is no different to buying anything else.

You don’t want to waste your money on something that doesn’t, or won’t, do the job. But you don’t want to pay through the nose for things you don’t need either.

So you need to get it right and that means doing your homework. But let’s be honest: researching insurance is tedious. If only there was some kind of quick guide to get you started.

Welcome to your lucky day.

What is professional indemnity insurance?

Professional indemnity insurance (PI for short) is for businesses or individuals who offer a specialist service, give professional advice or provide particular expertise to paying clients.

It protects you against claims made by dissatisfied or disgruntled clients, and clients alleging you’ve not done your job properly.

Why do I need it?

If a client does think you’ve made a mistake, and sues you for their financial loss, you’ll need to defend yourself. Even if you know the claim isn’t valid, you’ll still need to do something about it.

Our own research tells us that if things do go wrong, in the absence of anything else, most businesses turn to their solicitor for help. That means big bills. And even bigger bills on top if, in the end, a court rules against you.

Having PI insurance means you don’t need to worry about that. The insurer appoints their own expert legal team, pays for your defence and stumps up for the compensation or awards to your client.

You get protection for your finances, minimal disruption to your business and the might of an expert insurer fighting your corner. Not bad for couple of hundred quid a year.

What does it cover?

We’ve already mentioned your professional negligence (actual or alleged). That’s the big one, but it's certainly not all.

You may not know that a good PI policy can also cover (depending on the wording) claims arising from these:

  • Defamation
  • Infringement of intellectual property
  • Loss of documents or data
  • Negligent misstatement or misrepresentation
  • The dishonesty of your employees
  • Computer virus transmission
  • Breach of confidentiality

And, really good policies will also pay for the cost of fixing a mistake before your client is aware of it (assuming not fixing it will lead to a claim of higher value, of course).

Anything else?

Yes – get help. If you’re in the market for professional indemnity insurance, it’s worth talking to a specialist broker first.

Understanding the basics of the cover is easy enough but policy wordings are laden with unhelpful and confusing insurance terms like ‘in the aggregate’, ‘claims made’ and ‘retroactive cover’. Get someone to explain what they mean.

And get the right policy wording too. There’s no point having a cheap, ‘general’ policy if it doesn't cover the risks your business faces. Again, an expert can explain what you need and take care of finding the right policy to cover it.

You'll find the cost of getting it right is much lower than the cost of getting it wrong.

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