This question can be really difficult to answer – it’s a classic case of “how long is a piece of string?”
There are three key factors a business should take into account:
- What’s the biggest a claim could be?
- How many mistakes might you make for a client?
- How many people might be impacted by any mistake I make?
Working out how big a claim might be can be straightforward – some businesses are able to include in their contracts that the most they will pay as compensation is the value of the contract itself. However, if something went badly wrong, you could end up fighting the point in court – and could potentially lose.
Conversely, some contracts insist that you hold a certain level of PI – clearly, it would only be sensible to buy a policy with at least that limit, therefore.
When thinking about how many mistakes you might make for a client it must be tempting to think: “Surely none! And if I do, it will only be the one mistake.” But sometimes if a mistake happens, it doesn’t get spotted at the time – and so can be repeated. A recruitment company, for instance, might accidentally omit to check a candidate’s right-to-work in the UK; if they’re recruiting 20 temporary members of staff for one specific project, that could trigger one claim for 20 mistakes.
You then need to consider the nature of the work you do. If each piece of work is completely unique – recommendations for how to implement a company restructure, for instance – then any mistake is only likely to occur once. But if you work for 1000 clients and incorrectly recommend how to implement a new government H&S policy to all of them, you could have 1000 claims for the same mistake! Individually they may be very small, but they would all add up.
A broker asked the question “How much PI should I buy?” will sometimes say “Buy as much as you can afford” – but you do have to draw the line somewhere to be practical and realistic.
What’s important is that if you offer professional advice and services, you should proactively consider buying some cover. You may not think you will make a mistake, but you never know when someone could accuse you of something – and what the financial consequences might be.
It’s not just the compensation, consider the cost of defending yourself. PI can also help reduce the distraction to your business while you manage the issue.
A recent report suggested that dog-walkers are now earning as much as £64k per year – professional indemnity should certainly be something they consider.
Here are some examples of claims they might see themselves defending:
- Negligence – the GPS tracker on the dog’s collar suggests you are not walking the dog as often, for as long, at the times and in the location you agreed
- Defamation – maybe an allegation that you posted on Twitter or Facebook saying unpleasant things about a high-profile client?
- Breach of confidence – allegations that you are the source for confidential financial information about a client or their business leaked to the media
- Dishonesty – when something goes “missing”, it is very often third parties such as PAs, nannies and cleaners with access to the property who get blame
Expect the unexpected.
A professional indemnity policy is a small price to pay for the peace of mind that if someone makes a claim against you, however unfair or unfounded, there may be funding and legal expertise there to defend you.
To find out more visit the Hiscox Professional Indemnity page of our website.