Why Do I Need Professional Indemnity Insurance?

Businesses need to make sure they are protected against claims brought against them by third parties. Say a customer has an accident such as a slip, trip or fall on your premises and sustains an injury, your business would be liable for compensation if it is proven that you were in some way to blame.

Public Liability insurance will help protect you in this regard, providing a level of protection in case of claims brought against you for injuries and damage to equipment sustained on your premises by third parties.

But what about those instances where damage has been done on an intellectual level?What about those pieces of advice you gave which led to a company suffering financial loss or damage to their reputation as a result?

That’s where Professional Indemnity Insurance comes in, providing a safety net for your business against any advice you may dispense, or helping to cover against any mistakes you might have made along the way which eventually led to damage to your client and their business.

What Does PI Insurance Cover?

Professional indemnity insurance helps cover your business against losses sustained by third parties – usually clients or customers – who may have suffered losses as a result of your advice, either on a financial level (loss of profits) or on a reputational level (downturn in business as a result of bad press).

Who Should Have PI Cover?

Almost all businesses should have some form of PI cover, especially if their work involves dispensing advice as a service. This can include areas such as:

  • Finance – financial advisors, solicitors, brokers, accountants
  • Property – estate agents, letting agents, mortgage advisors
  • Management – management consultants, leadership advisors
  • Technology – computer solutions, IT firms
  • Recruitment – recruitment consultants
  • Services – marketers, design consultants
  • Education – teachers, private tutors

Indeed, any professional who is in the business of dispensing advice, either on a financial level, design level or even on a physical level – in the case of a fitness instructor – is potentially liable for being sued as a result of poor advice which could hurt the reputation of their client and their business.

What Kind Of Situations Can It Cover?

Professional indemnity insurance can help cover your business against situations where your advice may have led to your client or customer suffering harm or financial loss:

Example 1:

Say you’re a florist and you have advised a customer on which flowers would look nicest in a bouquet for their partner, and the customer is pleased with the choice and makes the purchase.

Later on, your customer comes back and you find out that their partner was, in fact, allergic to the flowers you advised them on, which led to a stay in hospital as a result said allergic reaction.

Because you advised them which flowers to buy, you could find yourself liable – even if you were not to know at the time the said allergy – the customer could bring a claim against you as it harmed them on a physical level.

PI insurance would protect you against a claim like this one, where the customer may seek compensation for a stay in hospital which led to a loss of income as a result of your advice during the transaction.

Example 2:

A design agency has taken on the task of rebranding a company’s branding – everything from a new colour scheme to a new mascot and slogan – advising them on the best direction going forward and taking to social media platforms with a new design and a new voice.

All seems fine to begin with, but shortly after everything goes live, the company finds itself being ridiculed on social media, and after a bit of research, it is discovered that there has been a reaction to the slogan or mascot, leading to reputation damage and dip in sales.

Because the company’s reputation and public image took a hit, they could then sue the agency on the grounds of reputational damage. The design agency would have to have some form of PI insurance in place to help cover the costs of any compensation they may have to pay out.

How Much Should I Insure For?

PI insurance policies allow you to insure your business up to a certain amount and have two levels of cover, both of which affect any payouts:

  • ‘Any one claim’ – this would help cover any payments up to the full limit of your cover for each claim made against you. Say you insure for up to £100,000 a year, your PI insurer would cover the cost of more than one claim during that period, provided the amount didn’t exceed the limit.
  • ‘Aggregate’ – on the other side, aggregate PI insurance would only pay up to a certain amount. Say you had a cover of up to £100,000 but you get two claims of varying amounts which take you over your set limit, you’ll have to cover the remaining amount yourself. For example, your business gets 2 claims of £75,000 each on a PI insurance limit of £100,000 would take the total to £150,000, leaving your business to cover £50,000 of this out of your own pocket.

Professional indemnity insurance is an important policy to have when it comes to businesses who are in the industry of dispensing advice. Anything can happen and some advice can be bad, so it’s always best to prepare yourself for such possibilities.