Professional Indemnity Insurance
Cover for claims that your advice, design or work cost a client money, where nobody was injured and nothing was broken.
What Is Professional Indemnity Insurance?
Professional indemnity insurance responds to claims arising from the professional services you provide, such as advice, design or consultancy, where a client says that work cost them money. It sits alongside public and employers' liability rather than replacing either: those answer injury and damage, this answers the service itself. It pays the legal costs of defending the allegation and the compensation if it succeeds, and the defence costs matter as much as the settlement, because they are incurred whether or not the claim turns out to be justified.
It is sometimes called professional liability, PI or professional negligence insurance. Typical claims are a specification that turns out to be wrong, a deadline missed that costs a client a contract, a report that misses something, or advice that loses money. Nobody has to be injured and nothing has to be broken. The loss is purely financial, which is exactly what other policies do not cover.
What Professional Indemnity Insurance Covers
Negligence, errors and omissions
Claims that your work or advice fell below a reasonable standard and cost the client money. The core of the policy.
Defence costs
The cost of defending the allegation, incurred whether or not the claim turns out to be justified. On a disputed claim this routinely exceeds years of premium.
Breach of professional duty
Including missed deadlines, incorrect figures and reports that missed something material.
Run-off cover
Keeps the policy answering for work already done after you stop trading, normally arranged for six years to match the limitation period for a contract claim.
Where The Cover Stops
Wordings differ between insurers, so treat these as the usual position rather than as universal fact. Where one of them matters to you, it is worth checking on your own schedule before you need to.
The retroactive date
A new policy often only covers work carried out after the date you first took cover. Switching insurer without carrying that date across can quietly wipe out years of past work. It is one of the most common faults we find on policies people bring to us.
Gaps in cover
Because it is claims-made, letting the policy lapse for a month means a claim arriving in that month about work from three years ago has nothing to respond to. The old policy has gone.
Known circumstances
Anything you were already aware of, or ought reasonably to have been aware of, before inception is excluded. A complaint already received cannot be insured afterwards.
Deliberate acts and dishonesty
Fraud and deliberate wrongdoing by the insured are not covered, though many wordings protect innocent partners.
Injury and property damage
Physical harm falls to public liability. Professional indemnity is for financial loss with nothing physical involved.
Professional Indemnity Or Public Liability?
They cover different kinds of harm, and having one does not cover you for the other.
Public liability answers physical harm. Someone is injured, or their property is damaged. You knock a laptop off a desk on a client's site, or a visitor trips over your cable. Professional indemnity answers financial harm caused by your work or advice, with nothing physical involved at all. The drawing was wrong, the figures were wrong, the report missed something, the deadline slipped. The client is not hurt and nothing is broken; they are just out of pocket.
Which you need depends on what you sell. If clients pay for your judgement, drawings, designs, figures or recommendations, that is the exposure professional indemnity exists for. Most professional firms carry both, and many contracts require both.
Claims-Made Cover, And Why It Catches People Out
Professional indemnity works differently from almost every other policy you buy. Most cover responds to when something happened. Professional indemnity responds to when the claim is made. The policy that pays is the one in force on the day the client complains, not the one that was in force when you did the work.
Three consequences follow, and each of them surprises somebody every year. Letting the policy lapse for a month means a claim arriving in that month about work from three years ago has nothing to respond to. A new policy often only covers work carried out after the date you first took cover, so switching insurer without carrying the retroactive date across can quietly wipe out years of past work. And because claims can arrive years after a job, retiring or closing the company without run-off cover leaves every previous year unprotected.
None of this is hidden, and all of it is avoidable. It is worth checking the retroactive date on your current schedule now rather than at claim stage.
Choosing Your Limit Of Indemnity
The limit is usually set by somebody else: a regulator for the professions where cover is compulsory, or a client's contract for everyone else. £1 million and £2 million are the common asks, and a contract will normally state which.
Where the choice is genuinely yours, the question is the size of the loss your mistake could cause rather than the size of your fee. A small fee can sit underneath a very large consequence, which is why fee income alone is a poor guide to the limit you need.
Check whether defence costs sit inside or outside the limit. On a disputed claim they can be substantial, and a limit that has to absorb them is smaller than it looks.
Run-Off Cover When You Stop
Claims can arrive years after a job, so when you retire, sell up or close the company you need run-off cover to keep answering for work already done. Cancelling on your last day leaves every previous year unprotected.
It is normally arranged for six years, matching the limitation period for a contract claim, and the premium steps down each year.
If you are selling the business, buyers and their solicitors will ask about it, so it is worth settling before rather than during a sale.
How Much Does Professional Indemnity Insurance Cost?
Across the professional indemnity policies we place, premiums start at around £100 a year. Specialist work at high limits goes a long way beyond that, which is why we do not quote a top figure.
It is one of the cheaper covers to hold and one of the more expensive to be without, because the defence costs alone on a disputed claim will exceed years of premium.
These are premiums arranged for other businesses and are not a quote.
- Your profession, and the size of the losses a mistake could cause
- Annual fee income
- The limit of indemnity, often set by a contract or a regulator
- Whether defence costs sit inside or outside the limit
- The retroactive date and how many past years are being covered
- Your claims and complaints history
We are a broker, so we take it to several insurers rather than quoting one. Call 02382 000820 for a quote.
What We Need To Quote
- What the business actually does, and what clients pay you for
- Annual fee income
- The limit of indemnity required, and who is asking for it
- The retroactive date on your current policy, if you have one
- Any claims, complaints or circumstances in the last six years
- Whether you need run-off cover for a business that has stopped
Cover that often goes with this
The gaps we most often find sitting next to this policy.
- Public liabilityThe physical half: injury and damage rather than financial loss.
- Cyber insuranceYour own systems and data, which professional indemnity does not answer.
- Legal expensesContract and employment disputes outside a professional negligence claim.
- Tradesman insuranceThe trade version of this, with tools and van cover built around it.
- All trades A to ZCover written for your specific trade rather than the general product.
- Talk to a brokerTell us what you do and we will say which of these you actually need.
Common questions
What does professional indemnity insurance cover?+
It covers claims that your advice, design or work caused a client a financial loss: a wrong specification, a report that missed something, a missed deadline that cost them a contract, advice that lost them money. It pays the cost of defending the allegation as well as any compensation, which matters because defence costs are incurred whether or not the claim turns out to be justified. Nothing has to be physically damaged and nobody has to be injured; the loss is purely financial.
What is the difference between professional indemnity and public liability insurance?+
Public liability covers physical harm. Someone is injured or their property is damaged. Professional indemnity covers financial harm caused by your work or advice, with nothing physical involved. Knock a laptop off a client's desk and that is public liability; give them a figure that turns out to be wrong and costs them £40,000 and that is professional indemnity. Having one does not cover you for the other, and most professional firms carry both.
Do I really need professional indemnity insurance?+
If you are a solicitor, accountant, architect, surveyor, financial adviser, healthcare professional registered with the HCPC or an immigration adviser, it is compulsory as a condition of registration. For everyone else it is usually the contract that decides: consultants, IT and web developers, agencies, engineers, project managers and property professionals are routinely asked to show a certificate at £1m or £2m before work starts. The practical test is whether clients are paying for your judgement.
How much does professional indemnity insurance cost?+
Across the policies we place, premiums start at around £100 a year. Specialist work at high limits goes a long way beyond that, which is why we do not quote a top figure. It is one of the cheaper covers to hold and one of the more expensive to be without, because defence costs alone on a disputed claim exceed years of premium.
What is a retroactive date?+
It is the date your cover reaches back to. Professional indemnity responds to when a claim is made, not when the work was done, so a policy taken out today will often only cover work carried out after the day you first took cover. If you switch insurer and the retroactive date is not carried across, years of past work can quietly lose their protection. It is one of the most common faults we find on policies people bring to us, worth checking on yours now.
What is run-off cover and do I need it?+
Run-off cover keeps a professional indemnity policy answering for work you have already completed after you stop trading. Because claims can arrive years after the job, cancelling on your last day leaves every previous year unprotected. It is normally arranged for six years, matching the limitation period for a contract claim, and the premium steps down each year. If you are selling the business, buyers and their solicitors will ask about it.
Other cover we arrange
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Related reading
Guides from our team on the cover discussed on this page.
