5 things to think about when purchasing Professional Indemnity Insuranceon
1. What is my actual professional risk and exposure?
Professional Indemnity (PI) Insurance is not in place to cover physical or manual works carried out. Instead it attaches to professional services, which can include errors in advice, technical writing, calculations or drawings, and statements made in the ordinary course of your business.
Therefore, talking to your broker to understand the differences between what fees are deemed to be professional and how this compares to overall turnover is important.
2. If something does go wrong how will it impact my business?
Because Professional Indemnity insurance is in place to cover financial or reputational loss, quantifying this level of unforeseen loss can be difficult, but it is often significant. It is important to note that PI claims will incur legal costs, in the defence and handling of your claim. You may even have to appoint an expert as part of your defence. Without PI in place these costs would have to be met by you and it is unlikely that most businesses will have the cash reserves in place to handle such a potentially large (and in many cases six figure) payment of damages and/or defence costs to a claimant.
PI claims take many years to settle and aside from the cost that may be incurred you should be mindful of the time taken by you and your staff to defend a claim. Without the support of a suitable PI policy and PI insurers handling the claim on your behalf, your time may be taken away from fee earning and the ordinary course of your business. Does your balance sheet allow for this?
3. What level of Professional Indemnity insurance is enough?
This is a common question and should always be approached individually to suit the needs of your business, not that of a similar practice or competing company. The level of cover can always be changed depending on your circumstances but generally you should consider the following points:
- The value of the services you provide
- Any total contract or project values
- The industries and types of clients you work with (e.g. do you work with large commercial or corporate clients or smaller domestic scale clients?)
- The consequential losses if an error or omission occurs
- Any client, funder or other contractual obligations to maintain PI
- If you work overseas, whether your limit of indemnity will equate to the local requirements considering currency fluctuations.
Reich recommends that you regularly review your PI limit of indemnity to ensure it is suitable for your current requirements.
4. What can I do to help the process?
Aim to provide as much information and detail as possible when working with your broker. Think about how to place your broker (and therefore your insurer) in your shoes and “walk them around” your business to show them the type of work you do - whether you work in high or low risk areas or industries, and how you manage your business to prevent any errors or omissions in the first place. The insurance industry views this “risk management” information of your own processes, procedures and good housekeeping as important as the details of your financials.
5. How long am I willing to maintain PI?
You should maintain PI for the duration of your professional career, but this depends on your current circumstances - Are you just starting out? Are you renewing an expiring policy? Are you winding down and looking to retire? Generally, there are limitation periods that exist depending on whether it is a negligence or contractual claim against you.
It is recommended that you maintain PI for a minimum of 6 years and usually around 12 years from completing your services. You will need to think about when you completed your services on the projects and whether you signed contracts obliging you to maintain PI. If you are looking to wind down or retire then it is recommended that you maintain a ‘Run Off’ policy to cover your completed work.
From how long to maintain PI cover to how to deal with your broker to get the best out of your renewal process, it is important to have expert advice on hand when placing and maintaining cover. The main points above summarise PI generally, and we understand many businesses may need specific advice and guidance.
For more information on how Reich can assist you please get in touch today.