Some electrical contractors, cctv installers, alarm installers and fire companies make a point of having PI cover. Professional indemnity insurance, or PI insurance, covers the legal costs and expenses incurred in mounting a defence, as well as any damages or costs that may be awarded, if you are alleged to have provided inadequate advice, designs , or services which cause your client to lose money.
Do I need professional indemnity insurance?
Many professions need to have PI as part of their respective industry body’s regulatory requirements. Even if you are not obliged to have PI insurance, without it, you could be liable for thousands of pounds worth of legal fees and compensation – as well as the lost income from the time spent defending any allegation. You are likely to need professional indemnity insurance if:
- You provide advice or professional services to clients (including consulting or contracting)
- You provide designs to clients (such as an electrical engineer, cctv or alarm system designer)
- You want to protect against allegations of mistakes or negligence in work you have undertaken for a client
- You work as a contractor, consultant, or self-employed professional, and your client has requested you arrange PI in order to undertake a contract
- Your industry body or regulation requires you have it
How much does professional indemnity insurance cost?
The cost varies depending on a number of factors, including the amount of cover, type of business undertaken, claims history, and whether any existing cover is in place.
What is the difference between an 'any one claim' and an 'aggregate' policy?
'Any one claim' and 'aggregate' refer to the basis of cover on a professional indemnity policy.
An 'any one claim' policy provides cover up to the full limit for each individual claim made in the period of insurance, whereas an 'aggregate' policy provides cover up to the full limit for all claims made in the period of insurance.
To explain by example, if two £75,000 claims are made against a £100,000 any one claim professional indemnity policy, the insurer covers the costs of both claims, as both are under the £100,000 limit. However, if two £75,000 claims are made against a £100,000 aggregate professional indemnity policy, the insurer pays only up to the £100,000 limit. As the claims total £150,000, the remaining £50,000 would need to be funded by other means.
Any one claim is most often taken as the more comprehensive option, but the basis of cover varies from insurer to insurer depending on your business activity.
What does 'claims made' mean?
A 'claims made' policy provides cover for claims made and notified to the insurer during the period of insurance.
This means provided the wrongful act occurs during the period of insurance, and you report it to the insurer during the period of insurance, it will be covered. However, if the policy is cancelled or not renewed, cover will end and any subsequent claim – regardless of when the wrongful act occurred – would not be covered by that policy. To maintain the integrity of PI cover it's important to ensure it remains in place at all times – even between contracts or work – so that your business is protected. With PI you cannot have "breaks" in cover.
What is 'run off' cover?
Run off cover insures against claims of professional negligence brought against you after your business has ceased trading. This could be, for example, if you have sold your business or closed it down. It is particularly important for retired business owners to consider; without run off cover in place, they would have to fund the defence of any claim from their own back pocket.