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Professional Indemnity Insurance - A simple guide

As a professional contractor, when you offer to carry out a service you must be able to provide an adequate degree of skill, with enough knowledge and experience to responsibly advise about the work you undertake.

If you are unable to carry out this service to the standard expected, you can be held liable for any loss or damage to people or property caused as a result of your work.

Professional indemnity insurance explained

A Professional Indemnity policy (PI) is a type of insurance designed to protect professional people against potential claims for injury, damage or loss caused by professional incompetence or negligence.1

Having this insurance provides financial protection against any claims made against you including legal defence.

What to look for when choosing a PI insurance provider

There are dozens of providers that offer PI insurance. But some of these will offer services better suited to your profession and the size of your business than others.
Some key aspects to keep in mind when choosing a policy include:

  • Can the policy be tailored to suit your needs?
    If so you may be able to avoid paying additional premium for cover you don’t need.
  • Does the provider understand your business?
    Dealing with a provider that understands your business will provide reassurance that what you are paying for will provide you with the cover you need.
  • Is there an option to pay by monthly payments? 
    This is a great option for new businesses who are still wary of cash flow.
  • Does the provider have a good reputation? 
    It never hurts to do your research. Finding a reputable insurance provider will give you confidence that any claims will be dealt with efficiently and paid out if necessary.

PI is usually offered on a claims made basis2. This means that your insurer will only cover you for claims made when a policy is in place and has been in place continuously. It is important to maintain cover as claims can occur years after work is completed. Always keep track of insurance renewal dates and keep up to date with the terms of your policy to protect yourself against liability claims.

See below, a prime example of where PI Insurance could be essential in saving the reputation of your business:

A few months ago you completed a kitchen extension for a client. You have since been on holiday and missed your PI renewal, but as you are not working at the moment you don’t feel in any great rush.

The same client discovers an issue that results in substantial damage to the property. The client is angry and makes the claim public on social media. It goes viral.

A good reputation is difficult to build but is easily destroyed. This will require specialist PR advice to rectify and could be very costly to your business. However, since your insurance is now out of date, you are liable for all costs incurred.3

Sources

1. cii.co.uk/professional-indemnity/

2. abi.org.uk/choosing-the-right-insurance/professional-indemnity-insurance/

3. hiscox.co.uk/six-professional-indemnity-risks-business-probably-havent-thought/

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