Professional indemnity insurance

What is professional indemnity insurance?

Professional indemnity insurance protects you against the cost of being sued if your company financially damages a client.

This could be due to mistakes you make, bad advice you give or negligence on your part.

If you give advice, provide a service or skill, or handle sensitive client data, it's best to have professional indemnity insurance in place.

What does professional indemnity insurance cover?

Professional indemnity insurance protects you and your business against the cost of compensation and legal fees if a client makes a claim against you.

Mistakes covered by PI insurance can include:

• Negligence, if you give incorrect advice or make a mistake
• Unintentional infringement of confidentiality, if you breach confidentiality rules
• Copyright infringement,if you infringe on copyright, trademarks or intellectual property
• Loss of documents or data, if you lose sensitive files

Small errors can lead to big losses for clients. As the level of compensation awarded by a court tends to depend on how much a client loses, compensation payouts can quickly become expensive.

Even if you’re not required to take out professional indemnity insurance by your trade body or under the terms of a contract with a client, you could be very glad of it.

How much professional indemnity insurance do I need?

If you’re part of a regulated industry, or in a profession like an architect with a trade body, you’ll usually be told how much professional indemnity insurance you need as a minimum.

For example, according to the Solicitors Regulation Authority, solicitors must be insured for single claims of least £2 million.

Some contracts you have may also require you to have a minimum level of cover, so check these to ensure you take out the right amount.

You could also try to estimate the amount of cover you need yourself by looking at how much the contracts you’re working with are worth, and how much a reasonable compensation pay-out might be.

Do I legally have to have professional indemnity insurance?

It’s not a legal requirement to have professional indemnity insurance.

But regulatory bodies, trade associations or your clients may require you to have cover in place.

While you won't be breaking the law by not having professional indemnity insurance, you might be breaking the terms of a contract.