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Potential PI Insurance Problems

Professional Indemnity insurance, also referred to as PII, is an insurance for regulated firms and trading members to protect them in the event of a legal claims or disputes. Many professional bodies and unions require PII in order for the business or individual to obtain membership to that group. PII can be complex, and with so many terms and conditions to consider it is essential that you understand the potential pitfalls to prevent problems from occurring in the future. We reveal some of the most common pitfalls when it comes to PII.

Withdrawal of Licenses

In rare occasions the company providing the PII may have their license revoked either for malpractice or because of operating issues.

In 2014 the Latvian firm, Balva, had all of its operating licenses revoked by the Latvian Board of Financial and Capital Market Commission (FCMC). Balva was the third largest provider of professional indemnity insurance within the United Kingdom. This swift move essentially left over 1,300 firms less than one month to find replacement PII cover.

In order to protect yourself against having PII from a firm that could potentially have its licenses revoked and become insolvent, it is important to choose a well respected and highly rated firm that has been operating in the industry for some time. If you find yourself in the position of having an insolvent insurer you will be required to find replacement cover immediately, and to potentially pay two premiums. Failure to do so could force you to stop practicing until valid professional indemnity insurance is obtained.

Exclusion of Liquidated Damages

Whilst a PII may look good from the outset, a deeper delve into the small print and you may find that a number of potential risks are not covered by the insurer. Liquidated damages are often not covered by PII. If you fail to deliver work by a set time frame, or if that work is not delivered to the required standard that has been agreed, you will be liable to pay the costs of these to the claimant.

Data Protection Act Cover

Another factor to consider is if the PII covers the loss or theft of client data under the Data Protection Act. Cyber-crime costs businesses an estimated £21 billion a year, and this figure is constantly on the rise, making data protection an increasingly important area of importance. Many professional indemnity insurers are now incorporating data theft into their PII policies, however, some have yet to update policies to reflect these changes. Always check the small print to ensure data protection is covered.

Maximum Payout Too Small

In some instances the payout of the PII is too small to cover the total costs of the claim. When choosing a policy the total payout amounts for different incidences need to be considered. Never just go for the cheapest quote as this could leave you in financial difficulties should a serious incident that the PII is unable to cover occurs.

Failure to Follow Protocol

Should you be involved in any circumstance that could potentially lead to a claim or dispute, it is your responsibility to report this to your PII provider. Under many PII policies this also means that even small complaints should be reported. Failure to do so could result in a void claim. Admitting liability could also cause problems with a claim against you. Always seek professional advice prior to making any admissions to your PII provider.

These PII pitfalls can be avoided if you take the time to choose a quality and well respected PII provider. You should also read through all the small print and know all of the details of your policy and what exact protocols you should be following to avoid invalidating your insurance in the future.