What is so diffent about PI insurance?
What is professional indemnity insurance?
Professional indemnity insurance is part of a range of policies which are aimed at businesses. It is also known by the abbreviated term PI insurance, and is designed to indemnify you against claims made by clients or third parties who allege that you have failed them in your professional capacity. Often such claims are made a considerable time after the event which triggered them. Obtaining the right cover is essential if you give advice as part of your work, you handle sensitive data belonging to your customers, manage their intellectual property or perform any professional function which may adversely affect them or any third party in some way if things go wrong. A good insurance provider will tailor a policy to suit the specific risks you or your company face.
The rise of the compensation culture
Unfortunately claims for damages are no longer a rare occurrence, and if you make a mistake that affects one of your clients or any third party it is likely they will pursue you for compensation.
In the event that someone makes a successful claim against a professional individual or company, the costs, damages and legal fees may be covered by a PI policy. In this way, companies are shielded from the financial impact of a damages case and can continue trading, even if a claim against them is considerable.
How is it different to other insurance policies?
Like motor insurance policies, business cover such as public liability and employer’s liability policies usually feature ‘events occurring’ cover. In practice, this means that any event which occurs within the period of insurance is covered, regardless of when the claim is made. This also remains true if you change insurers in the interim. Let’s say your business was covered by an ‘events occurring’ policy three years ago, but this has since lapsed. If you are subsequently presented with a claim referring to an incident that occurred during that period, your cover should still be in force. In practice the vast majority of "events occuring" claims occur are made very soon after an incident; for example if one car bumps into another, a client trips over a trailing cable, an employee has an accident, these are immediately apparant. However, what if faulty foundations subside several years later, a patient's health worsens after a couple of years because of a mis-diagnosis, a faulty piece of sofware triggers a catastrophic data loss years after it was designed? This is where "claims made" cover comes in.
PI policies work on a ‘claims made’ basis
In contrast, a PI policy is sold on a ‘claims made’ basis - a claim has to be made and the insurer notified within the term of the policy. This claim could be for something which happened recently, or in the past, before the policy first came into force. When you apply for a policy your potential insurer will want to know something about your past activities so that they can calculate the risk of a historical claim being made. If a claim is made when the policy has ended, even if the problem occurred within the insured period, you would not be covered by that insurer. The liability could then pass to your new insurer, provided that you have complied with their disclosure requirements, amongst other conditions. You are therefore at risk if you allow your cover to expire.
There is no break in your cover as long as a policy is kept paid-up and active. So even if you are taking a short break from work, or if a contract has ended, in order to safeguard your company from claims, you should always maintain an up to date professional indemnity policy.
What about if I leave or retire?
When a person or an entire business ceases to trade, they can purchase a ‘run off’ insurance policy to cover any claims made against their previous work.
Who decides what level of professional indemnity cover I need?
People involved in certain industries do feel their premiums are substantially higher than those of other professions. However, this is because the extent of their losses could be greater. The level of cover you need should be established in negotiation with an experienced insurance company or broker, since it will depend on the amount and the scale of work you undertake. In some professions government regulations or professional bodies may require certain minimum levels, for total cover, individual claims or both. A good PI insurance broker should be aware of these and able to advise you.
What are ‘aggregate’ policies and ‘any one claim’ policies?
When you start obtaining quotes for professional indemnity insurance, it’s likely that you’ll be presented with two choices of policy by a potential provider, these are known as ‘any one claim’ or ‘in the aggregate’. Most quotes will include both options, but before you immediately go for the cheaper deal, it’s worth looking at what these terms mean.
When a policy is sold as "aggregate" with, say, a £1 million limit, £1 million is the total amount you’ll ever receive through the policy in any one year – including any legal costs you incur. If you have a particularly bad twelve months and three claims made against you for £500,000 are proved to be valid, you would need to find the final £500,000, plus costs, from your own pocket. Claims can run into sizable amounts, and in a worst case scenario, you could be self-funding a considerable payout.
However, if you purchase "any one claim" professional indemnity cover with a level of £1 million and successful claims are made against you, your insurance provider will pay up to £1 million to cover damages and your legal costs for each claim. This will remain true of each insurance claim you are obliged to make throughout the period of cover.
What is best for my business?
Professional indemnity insurance based on "any one claim" is generally considered to be the safest way of securing your business. It is comprehensive and transfers any risk of monetary loss to your insurance provider. You are given far more protection than with an "aggregate" policy, but this means the products are more costly.
If your business activity poses very little risk and your contract values are low, an insurance company may suggest an "aggregate" policy to save you money. Ultimately, you need to weigh up the benefits of a cheaper premium with the potential damage that could be caused by one or more significant claims.
Should I think about getting professional indemnity insurance?
People who offer a professional service or those who provide any kind of consultancy assistance face possible liability claims. This includes a wide range of professions and if in any doubt you should consult an experienced PII broker for advice.
We read about the ‘compensation culture’ becoming more of an issue and it’s a worrying fact that professionals in every line of work are increasingly targeted in this way. When a customer finds something has gone wrong, you may be the one they blame, even if you were giving free or very reasonably priced advice.
Many professional bodies and established industries make it a legal requirement for their members to have a PI policy in place. Even if you are not subject to these rules, it can make sense to cover yourself in the event of a claim, if without protection you risk losing both your personal and business assets.
What will I be covered for?
If a case is brought against you and proven, a personal indemnity policy should pay out any allotted compensation to the claimant, as well as both parties’ costs. The person in question may need money for a loss of current or future earnings, or to repair damages to their property.
What types of risk could my business encounter?
People bring a damages claim for many reasons; a loss of personal data or paper based documents, a breach of confidentiality, defamation of character, copyright disputes, alleged negligence, claims of over-charging, are all common.
Sometimes a harmful event takes place without you playing any active role, but your business could still be liable. A breach of confidentially could be intentional, like failing to respect an employee’s privacy by leaving their CV in a public place, or accidental, if a laptop, which contains a clients sensitive information, is stolen.
The nature of each specific claim will depend on the profession it relates to. For example, an accountant may be subject to a claim because a customer believes they were given bad tax advice, but an architect could receive a claim due to a structure they designed becoming unstable
Prior to taking out a policy always check that the cover is relevant to your particular industry and includes what you need it too. To be doubly sure, go over the small print and flag up any points that appear vague, then clarify these with your provider.
Am I covered for work I undertake overseas?
When you are taking part in any kind of work overseas, always check with your insurance provider or broker that you are covered. If so, ask whether the type of cover is different and if the level is reduced.
Many people work abroad regularly, so they need a robust PI policy that provides comprehensive protection. However, when you only work with overseas clients rarely and your policy is not valid abroad, it might seem excessive to change your entire cover. Instead, consider obtaining a quote that refers to a particular project or fixed period of time.