Professional indemnity insurance is a type of insurance policy designed specifically for businesses that offer professional services or consultations to their clients. Given the growing emphasis on accountability and responsibility in today’s corporate environment, comprehensive professional liability insurance is an essential component of any risk management program.
Professional Indemnity Insurance
Essentially, it states that if there is an alleged failure or negligence in the delivery of any of these services, organizations must compensate their clients for their losses. Furthermore, they may be held legally liable for these risks and losses. The compensation for these risks can be extremely high, causing a business to go bankrupt even with a single case. As a result, organizations must prepare for such an event well in advance.
Do you Need Professional Indemnity Insurance?
If you provide your knowledge, skills, or advice as part of your profession, whether as a self-employed individual or for a company, you should think about getting professional indemnity insurance.
Some professions are required by their professional bodies or regulators to have professional indemnity insurance, such as:
- Chartered surveyors
- Financial advisers
- Some healthcare professionals
What Professional Indemnity Insurance Covers
The fundamental concept of professional indemnity insurance is to compensate the insured party against the risk of civil liability. The following are the primary risks covered by a professional indemnity policy:
Breach Of Confidentiality
The policy protects the insured against intentional or unintentional information disclosure that results in financial loss to the company.
Infringement Of Intellectual Property
It also covers the legal costs or legal defense costs associated with pursuing infringement or theft of intellectual property or copyright.
Impaired or unauthorized access
This policy covers damages caused by unauthorized access as well as losses incurred as a result of the same.
Civil fines and penalties
Civil fines and penalties imposed on the insured party as a result of negligence will be covered by the insurance company.
Libel, slander, and defamation
It includes coverage of defamatory statements or materials that can harm a person’s reputation in the eyes of others.
Breach and delay in duty
The policy covers damages incurred by the client as a result of delays in the execution of services. Furthermore, it protects against employee bad faith in the event of a breach of duty.
It includes claims made against professionals arising from a disagreement over the fees they charge.
What Professional Indemnity Insurance Doesn’t Cover
While PI insurance covers many situations, there are a few that you may not be covered for.
In general, PI insurance excludes:
- Penalties and fines
- Any business loss caused by mold, pollution, or asbestos.
- Employee injury or loss in a joint venture (only your products/services would be covered by your insurance, not a partner’s products/services)
Factors to Consider Before Choosing Professional Indemnity Insurance
Here are some factors you must consider before choosing professional Indemnity insurance:
Deciding the right sum insured
The sum insured is the most important part of any policy, so choose an amount that will adequately cover them in the event of a claim. Unlike popular belief, the sum insured is determined by the nature and magnitude of risks that a specific business faces, rather than the service or consultation fee charged.
Full disclosure of information
Never withhold any information from your insurer at the time of policy issuance. This could defeat the entire purpose of purchasing insurance in the first place, as the insurer has the right to reject your claim due to incomplete disclosure. Every piece of information, no matter how minor or insignificant, should be detailed.
Note the deductibles and sub-limits
The nature of risk varies by business, as does the premium. Choosing plans with deductibles or sub-limits is a popular way to reduce your premium. While this will lower your premium, choosing a deductible will require you to pay a portion of the claim settlement out of your own pocket. Similarly, plans with sub-limits have a lower premium but may limit your coverage when you file a claim. As a result, make an informed decision.
Aligning policy features with business needs
It is critical to match your business needs with the features you select in your policy. For example, if your company primarily deals with clients from other countries, you should avoid policies that only provide domestic coverage and instead purchase a policy that covers you outside of the country’s borders.
How to Buy Professional Indemnity Insurance
Professional indemnity insurance can be purchased directly from an insurer or through a specialist broker affiliated with the British Insurance Brokers’ Association (BIBA). Your occupation will determine the amount of coverage you require and the cost of your premium.
Some professional organizations and regulators require that their members be insured for a certain amount. Solicitors, for example, must have professional indemnity insurance worth between £2 million and £3 million for any single claim made against them.
If you are not a member of a professional body, you can ask your clients what level of coverage they expect from you.
Professional Indemnity Insurance Cost
The cost of professional indemnity insurance can vary depending on a variety of factors, including:
- the amount of coverage you require
- the activities you are undertaking
- the income your business generates.
Frequently Asked Questions
Who needs professional indemnity?
Who requires professional liability insurance? If a mistake could have a costly impact on a client, any individual or business can benefit from PI insurance. This includes people who provide specialized advice, services, or designs, as well as those who work with data and intellectual property.
What Is Another Name for Professional Indemnity?
Professional indemnity insurance is also known as professional liability insurance.
Who Gives the Indemnity?
The Indemnifier is the person who promises to compensate for a loss. The Indemnified, on the other hand, is the person whose losses the indemnifier promises to compensate. The Indemnified party is also known as the Indemnity Holder.
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