Professional Indemnity

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Professional Indemnity Insurance protects the providers of a professional service, such as accountants, lawyers and architects, against the cost of making an honest mistake. This is still the case, but when the first Professional Indemnity insurances were written in the 1700s, professional services were offered directly as a sole trader or through a partnership. This meant that a professional making a mistake could pay up to their entire wealth to rectify it. The business environment changes, for example solicitors were allowed to form companies from 2004, and today professional services are generally provided by a limited liability company. Limited liability is what it says – it is a company that limits the liability of its owners. Professional indemnity insurance today is as much about protecting the client as it is about protecting the service provider.

There is still a lively market for the traditional professions mentioned above, but insurers will provide professional indemnity for a vast array of services. For example, S M Underwriting has an A to Z list naming over two hundred professions.

The main cover centres on circumstances where a service provider has not reached the standards that might be expected of them. The extensive list includes, breach of duty, breach of trust, neglect, error, omission, misstatement, misleading statement, libel, slander, wrongful trading and breach of warranty or authority.

Many insurances include additional cover. Professional Indemnity Insurance is no exception. This additional cover tends to be limited to a lower amount than the central cover. Additional covers on a Professional Indemnity Insurance include:

  • Loss of documents or data
  • Unintentional breach of copyright and/or confidentiality
  • Defamation
  • Loss of goods or money (your own or for which you are responsible)

A small professional services business will usually buy a package of insurance, which will include Employers' Liability and Public Liability, centred around their core Professional Indemnity Insurance. For a business with about £300,000 of turnover cover from a good insurer should cost less than £2,000. As businesses get larger and their activities get riskier the price of Professional Indemnity Insurance increases. A small Financial Services business should expect to pay £3,000 or more. Financial Services Professional Indemnity is often £10,000. In general the premium does reflect the earning capability of the business. Smaller, less risky lower income businesses will have premiums of less than £2,000 for good cover. Expert witness work tends to have lower Professional Indemnity premiums. Expert witnesses were immune from negligence claims until Jones vs Kaney overturned this. Jones vs Kaney is a unique set of circumstances which highlights some risk which are highly mitigated for most clients.

MRSL Enterprise has a particular specialism in Professional Indemnity insurance for Financial Institutions. In this sector there are various regulatory requirements for certain levels of PI insurance. With the team's background across financial services from banking to insurance MRSL Enterprise is well placed to understand your business and place PI insurance.

Is Professional Indemnity insurance required by law?

For most professions there is no legal requirement to buy Professional Indemnity Insurance. A few professions, such as doctors, do have a legal requirement to buy professional indemnity insurance. For doctors this is a specialist medical indemnity product. For other businesses, such as insurance brokers there is a requirement to buy Professional Indemnity Insurance in their regulations.

Who should buy Professional Indemnity Insurance?

Professional Indemnity Insurance is a good marketing tool. It demonstrates that the service provider and their insurer has confidence in the quality of the work. Some buyers of services will insist on their chose provider having Professional Indemnity Insurance. Professional Indemnity Insurance covers clients where the quality of the service causes loss or harm. A tree surgeon could buy Professional Indemnity Insurance to cover the loss if his work damages the tree and that causes loss. However, a tree surgeon would also need to consider Public Liability Insurance to cover damage or injury from falling branches.

How much does Professional Indemnity Insurance cost?

>A small professional services business will usually buy a package of insurance, which will include Employers' Liability and Public Liability, centred around their core Professional Indemnity Insurance. For a business with about £300,000 of turnover cover from a good insurer should cost less than £2,000. As businesses get larger and their activities get riskier the price of Professional Indemnity Insurance increases. A small Financial Services business should expect to pay £3,000 or more. Financial Services Professional Indemnity is often £10,000. In general the premium does reflect the earning capability of the business. Smaller, less risky lower income businesses will have premiums of less than £2,000 for good cover