What is professional indemnity insurance?
Professional indemnity (PI) insurance is a commercial policy designed to protect business owners, freelancers and the self-employed if clients claim a service is inadequate.
Any organisation which provides a professional service or gives advice could be sued if the recipient is unhappy with their work. A customer might say you were negligent, delivered the wrong training or made a mistake which cost them money.
Indemnity cover, also known as professional liability insurance, is designed to safeguard service-based enterprises, come what may. As a professional, you take pride in doing great work, but if disagreements occur, this cover handles the cost of putting things right – including legal fees.
Guide to professional indemnity insurance
Watch our video guide to understand more about professional indemnity insurance, and how having PI cover in place may help to protect your small business from unexpected scenarios and related costs.
Do I need professional indemnity insurance?
Professional indemnity insurance is not a legal requirement – but professionals who work in certain sectors should still consider it one of their core business needs. This is because some industries are much more likely to suffer service-based disputes than others. Some clients may choose to make this insurance a contractual requirement or your industry regulator might say it’s essential.
Professional indemnity cover is usually a priority if:
- Your business provides professional services, including expert advice and consultancy, to clients
- Your line of work can lead to disputes over quality, vision or copyright – for instance, if you are a graphic designer or architect
- Your work leaves you exposed to claims of professional negligence. If you provide training in a sensitive area such as first aid, this might be the case
- You have access to confidential customer information
- You are a freelancer, contractor, consultant or provide services on a self-employed basis
Accountants, financial consultants, surveyors, engineers and healthcare professionals are all likely to need professional indemnity insurance due to requirements set by their respective industry bodies. Likewise, contractors who provide services to a certain industry – such as the energy sector – are likely to need mandatory cover.
This doesn’t mean PI insurance should be passed over by other types of businesses, however. Journalists and media companies might face intellectual property claims and IT consultants can accidentally breach contractual rules while running software updates. If there’s a chance that clients could take you to court over such a dispute, then taking out professional indemnity insurance is often a good idea.
What does PI insurance cover?
Professional indemnity insurance is often explained in terms of what might go wrong – but what does it cover? From Hiscox, PI policies can provide up to £10 million for legal fees or compensation costs. If your business makes a costly mistake – or a customer claims it has – then this financial assistance can help you to survive and thrive beyond the court case.
Hiscox professional indemnity cover also provides industry-specific policies for tailored protection. As your business grows, we’ll help you to cover indemnity risks along the way.
Professional liability insurance helps in a wide range of scenarios such as professional negligence claims, data loss claims and allegations you’ve given poor business advice.
If someone within your organisation fails to apply due diligence, leaves sensitive files on a train or gives damaging advice in an email, it’s easy to find yourself facing legal proceedings. Read our FAQ guide to learn more about breach of confidentiality and what it entails.
Tricky areas such as defamation and intellectual property are also covered by professional indemnity insurance. If your social media intern shares a questionable claim about a competitor or another company says your work is too similar to theirs, having the right professional indemnity policy in place can cover the costs of legal defence and any pay outs.
Professional indemnity insurance only covers events which have occurred since you’ve held such a policy. This is called a retroactive date.
How much PI insurance do I need?
The amount of PI cover your business needs will depend on the nature of your work and the type of clients you service. If you work with large organisations in heavily-regulated industries, then your professional indemnity requirements are likely to be higher.
The first step to gauging how much PI cover is necessary for your business is to ask your clients how much they would expect. After all, this type of policy brings confidence to them as well as you. A minimum threshold may also be specified by a governing body you belong to.
Otherwise, consider how much it might cost to rectify a worst-case scenario disagreement, including legal fees and losses incurred. This number can provide a guideline for how much professional indemnity insurance you need. You should also ask questions such as ‘do I have sufficient staffing capacity and cash flow to rectify big mistakes?’ If the answer is no, then your business could benefit from higher-value PI cover.
The cost of professional indemnity insurance depends on several factors, including the value of the cover you take out and the nature of your work. Hiscox professional indemnity quotes start from £9.50 a month* and cover can be tailored to a wide range of professions. This means our quotes take note of the common risks in your line of work.
It is often cost-effective to consider the cover you’ll need first and foremost, since this is the best way to ensure you’re protected for any eventuality. The cost difference between meeting the upper estimate of necessary cover and a smaller sum is often fractional – as our guide to the cost of professional indemnity insurance explains.
*Based on 12.4% of customers who purchased professional indemnity in 2019
Related guides & FAQs
Is professional indemnity insurance tax deductible?
Some types of business insurance are classed as ‘allowable expenses’ – find out if this applies to professional indemnity cover by reading our guide to PI and tax.
What is breach of copyright and how do you prevent it?
You may be surprised by how easy it is to fall foul of copyright rules. If you use music, imagery or design, learn how to avoid a breach with our guide.
What is the difference between public liability and professional indemnity insurance?
PL and PI insurance both cover compensation claims, but in different circumstances. Our guide covering the difference between the two explains all.