Professional indemnity insurance definition
Professional indemnity insurance is an important type of business insurance, especially for businesses that give advice or provide a professional service to clients. It can cover compensation claims if a business is sued by a client for making a mistake that leads to financial loss.
Working out exactly what professional indemnity insurance means can be a litle tricky, so we’ve broken down the most frequently asked questions to help you get a handle on what it is and why you might need it.
The businesses that usually decide they need professional indemnity insurance (sometimes called PI insurance) are those that give advice, offer a professional service, or handle client data or intellectual property. It’s therefore important for many business types, from accountants to architects.
Some professional bodies or regulators demand that their members or the businesses they regulate hold professional indemnity insurance. This applies to solicitors, accountants, architects, chartered surveyors, financial advisers and some healthcare professionals.
Other businesses will decide to take out a policy anyway, to protect them financially and help them win contracts. After all, in many cases clients will only do business with you if you are properly protected. A good professional indemnity policy helps to provide you and your clients with peace of mind.
Professional indemnity insurance isn’t mandatory under the law, but, as mentioned above, the rules of some regulators and professional bodies mean it’s compulsory for some professions, such as solicitors, financial advisers, accountants and architects. It’s also required by some client contracts.
Professional indemnity insurance can cover compensation payments and legal fees if a client makes a claim against you. The compensation payment will usually take into account the financial loss that the client has suffered.
Imagine, for example, that you are handling client data, but you or an employee copies the wrong person into an email when sending on the data. Your client sues you for breach of confidentiality. In this case, your professional indemnity insurance could pay for the cost of the compensation claim, along with legal expenses.
Professional indemnity insurance can be bought either as a standalone cover, or as part of a single, flexible business insurance policy. The price of your professional indemnity insurance is based on several factors, including the type of work you do and the level of cover you choose. The quickest way to get a price is to run an online quote.
At Simply Business we offer professional indemnity insurance cover levels of between £50,000 and £5 million. It can be difficult to decide what level of cover you need, so a good place to start is to contact your clients and ask how much cover they expect. If your regulator or professional body requires you to have insurance, make sure you know the cover level they specify.
The retroactive date on your professional indemnity insurance is the date from which you’ve held uninterrupted professional indemnity insurance, or a date in the past from which your insurer has agreed to cover you. Anything that happened before the retroactive date isn’t covered by your insurance.