It’s a toughie, this one.
Nobody wants to spend money on things they don’t need. Especially when they’re trying to make a profit.
So how much professional indemnity insurance (PI) is actually enough? What kind of level of cover can you get away with and still be sufficiently protected?
The thing is, while it's all very well trying to save a few pennies, scrimping on your PI can cause more financial problems than it solves.
That's because defending yourself costs lots if you're faced with a claim. £Thousands in fact. Even if it's just an allegation and you haven't actually done anything wrong.
Insurance – at whatever level of cover – always costs less than a court case.
But it does still cost. Here's a conversation we had about getting the balance right.
How much professional indemnity insurance is right for me?
Client: So, PolicyBee, give it to me straight. How much professional indemnity insurance should I buy?
PolicyBee: As much as you can afford.
Client: Is that a joke?
PB: Nope. At least, not a very funny one. Saving money by buying less insurance could cost you more money if a claim is made against you. That much we know.
Basically, you can never have too much.
Client: OK … but I'm not a bottomless pit. What's a 'sensible' amount?
PB: It's really difficult to say. There’s no one answer: every business is different and needs different things. We can give you some advice on what to consider, though.
Client: That'll help. Are there any rules or regs on how much insurance I need?
PB: There are, but not for every business – it depends on what you do. Architects and accountants have to have certain levels of cover, for example. Many other professional bodies strongly recommend you have it but stop short of making it compulsory.
Client: What about the size of my business? Does that make a difference?
PB: Possibly. It's more about how much business you do. If your turnover is relatively high, you've either got lots of clients or fewer, high-value clients. Either way, claims are more likely and/or will be for more money.
Both circumstances mean you'll need more cover.
Client: I’ll bear that in mind. Anything else?
PB: Think about the types of clients you work with. Larger companies are more likely to get lawyers involved as soon as there’s a problem. Smaller clients or less 'corporate' customers might be a bit more relaxed about fixing a problem.
If you think you could be dealing with legal departments rather than business owners, play it safe and buy more cover. Those solicitors' bills can get pretty big.
Client: What about contract value?
PB: Good point. If your work is part of a project worth £millions, and your mistake scuppers it, you'll probably be sued for the cost of the whole contract - not just your part in it. Put simply: high-value contracts need high-value insurance.
Client: Yeah, but I'm a small business and I work on small contracts for small clients. This sounds like a faff – maybe I don’t need professional indemnity insurance at all.
PB: Even if you can 100% guarantee that you’ll never make a mistake (which of course you can't), it doesn't mean clients or third parties can’t claim you have. Size is irrelevant. Sure, you might not have to pay compensation or damages, but doing nothing isn't an option and getting a solicitor to help won't be cheap.
Client: Oh right. I hadn’t thought of that. So can you at least give me a starting point?
PB: If pressed, we'd say don't go for less than £250,000 worth of cover. Ideally for each claim rather than the total of all claims. You can get lower levels of cover but the price difference is sometimes so small they're not worth bothering with. If it helps, our most popular level of cover is £1m.
Client: Great. Thanks for telling it as it is, PB.
PB: It’s been our pleasure, imaginary but highly valued client.
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