What is professional indemnity insurance?
Professional indemnity insurance helps cover you and your business against claims for alleged negligence resulting from errors, misjudgments or omissions. It’s an important type of insurance for businesses that provide professional services to clients.
In practice, if a client suffers a financial loss because of advice you gave, a service you provided, or work you completely incorrectly, your business could be held liable. If that happens, professional indemnity insurance can help cover legal costs, compensation and other related expenses.
It’s worth considering for professionals such as consultants, accountants, architects, financial advisors and IT specialists – basically anyone whose expertise is central to their business. Without PI insurance, a single claim could disrupt your business’s financial stability and reputation.
How does professional indemnity insurance work and what does it cover?
You can take out professional indemnity insurance either as a standalone policy or as part of a bundled business insurance product. How it works will depend on the insurer, but as a general guide, it’s designed to step in if a client claims that your professional duty has negatively impacted them.
If that happens, here’s what professional indemnity insurance typically covers:
- Breach of duty: Like a consultant providing incorrect advice that causes a client financial loss.
- Defamation: A public comment in the course of work ends up harming another person or company’s reputation.
- Breach of privacy or confidentiality: Sensitive client data is accidentally shared or exposed in a cyber or human error incident.
- Lost or damaged document: Important client files are lost, stolen or corrupted, leading to a claim for damages.
- Intellectual property infringement: You’re accused of unintentionally using or reproducing another business’s copyrighted material.
- Reputation repair: Negative media coverage following a claim damages your business image, requiring professional PR support to rebuild trust.
This typically means…
You or your business are covered for any costs of managing a claim from start to finish. This includes investigating the allegation as well as covering legal representation and court fees if the issue ends up in court.
If you’re found liable, your insurer may pay any compensation, settlements, or damages owed to the affected client, up to your policy limit.
Many policies also include run-off cover, which protects you against claims made after you’ve stopped trading or retired, provided the incident occurred while your policy was active.
Professional indemnity insurance exclusions
Below is a list of common exclusions you’ll usually find in a professional indemnity insurance policy when the policy won’t provide cover:
- Intentional or fraudulent acts: Claims arising from deliberate wrongdoing, dishonesty or criminal/illegal activity (you’ll likely need to take out employee dishonesty, management liability, or directors’ and officers’ insurance for this).
- Bodily injury or property damage: Physical injuries (including death) or damage to property are generally covered under public liability insurance, not PI.
- Contractual liabilities: Claims for losses or damages that arise solely from the terms of a contract, rather than from your professional advice or services.
- Known claims or circumstances: Any issues you were aware of before taking out the policy.
- Fines, penalties or statutory breaches: Regulatory fines or punitive penalties are typically excluded (normally covered under statutory liability insurance).
- Employment disputes: Matters like unfair dismissal, discrimination or harassment claims are usually not covered.
- Risks covered under other insurance products: Asbestos, natural disasters, insolvency, commercial property or motor vehicle insurance, and more.
Professional indemnity insurance cost
Professional indemnity insurance costs around $1,500 per year on average, according to insurer HMD. Insurance broker National Cover reports premiums typically range from $540 to $4,680.
As with most business insurance, your actual cost will depend on factors such as:
- Your industry, type of work and level of risk
- The size of your business and number of employees
- Annual business revenue
- Claims history
- Chosen cover limit (usually between $1 million and $20 million)
- Excess amount payable (typically $500–$5,000)
Public liability and professional indemnity insurance: What’s the difference?
Public liability insurance protects your business against third-party claims for injury, death, or property damage caused by your actions or those of your employees.
Professional indemnity insurance, on the other hand, covers you if a claim alleges financial loss due to your advice, services or professional mistakes.
Many insurers offer both types of cover under a combined business policy, making it easier to manage your protection in one place. If you’re unsure which policy best suits your business, an insurance broker can help assess your risks and recommend the right level of cover.
Is professional indemnity insurance worth it?
If you offer advice or provide services, professional indemnity insurance can be a valuable safety net. Here ’s why it’s often worth considering:
Protects your livelihood
Even the most experienced consultants and professionals can make mistakes (or be accused of them). PI Insurance helps protect your business if a client claims they’ve suffered financial loss because of your advice, error or omission. It covers legal fees, settlements and compensation costs – up to your policy limit – that could otherwise put your livelihood at risk.
Builds trust with clients
Having PI insurance can give clients greater confidence in your professionalism and accountability. Many contracts – especially with government agencies or large corporations – require you to have cover in place before starting work.
Supports your reputation
A negligence claim can damage your reputation as much as your finances. With PI insurance, you’ll have access to legal experts who help manage disputes, defend your position and resolve claims efficiently – helping you maintain your credibility.
Offers peace of mind
Running a business comes with enough uncertainty. PI insurance provides reassurance that if something goes wrong, you’re financially protected. It allows you to focus on delivering quality work without constantly worrying about potential lawsuits.
That being said…
Not every business necessarily needs professional indemnity insurance. If you don’t provide professional advice or services, or your work carries minimal risk of causing financial loss to clients, PI cover may offer limited value.
For example, businesses that deal purely in products rather than consulting or advisory work might find public liability insurance more suitable. Ultimately, it comes down to the nature of your work and the level of exposure your business has to professional risk.
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