Wages, utilities, rent, marketing, necessary software and tools, the list of expenses goes on and on when you run a business. And that’s why insurance might not be a top priority as you try to make a profit and navigate life as a busy business owner.
Yet, professional indemnity insurance could protect you against potential claims in an increasingly litigious business environment.
Professional indemnity insurance is a type of insurance that protects businesses against claims made by clients or customers for alleged breaches of professional duty, errors, omissions, or negligence while conducting their business.
Unfortunately, even if you haven’t done anything wrong, a PI claim could have devastating consequences for your business.
That’s where professional indemnity insurance comes into play!
But why do you need professional indemnity insurance exactly? How can it help you?
That’s what we’ll answer in this article.
What is professional indemnity insurance?
Professional indemnity insurance is a type of insurance designed to protect professionals against financial loss arising from claims of error, omission, or negligence that have allegedly occurred due to their professional services. The purpose of this type of policy is to cover the legal cost associated with a claim and the cost of compensation.
Below is a list of risks PI insurance can protect your business against
- Alleged omissions, negligence, or mistakes in the performance of professional services
- Alleged breach of professional duty, including breach of confidentiality
- Misrepresentation or fraudulent conduct
- Loss of or damage to a client’s data or equipment
- Intellectual property infringement
- Slander
- Failure to deliver services or products as promised
While some might see PI insurance as a cost, we’d argue it’s an investment destined to help you manage potential legal and financial risks.
When is professional indemnity insurance required?
Now, why do you need professional indemnity insurance as a small business owner or independent contractor?
Well, depending on your profession, holding professional indemnity insurance might be a legal requirement. Indeed, some highly regulated industries require professionals to have professional indemnity cover in place.
Who needs professional indemnity insurance?
If you provide professional services, including advising clients, you most likely need PI insurance.
But wait, why do you need professional indemnity insurance if you’re just a professional operating on your own?
Well, regardless of the size of your business, your clients trust you to deliver the expected services you advertise and facilitate the desired outcome. But this, in turn, means that you’re exposed to a wide range of risks in the event your clients suffer financial losses due to your recommendations or advice.
Here’s a list of professionals who need professional indemnity insurance to be able to practice:
- Accountants
- Legal Practitioners
- Real Estate
- Healthcare Professionals
- Engineers
- Disability workers
- Finance and mortgage brokers
- Land surveyors
- Personal trainers
- Tutors
- Social workers
- Marketing Consultants
- IT Consultants
- Bookkeepers
- Migration agents
- Architects
Why is PI insurance so important?
Protection against claims of negligence, errors, or omissions
As mentioned above, PI insurance protects businesses against claims of negligence, errors, or omissions during the work they carry out. Mistakes happen, but they can be costly. PI insurance can cover the costs associated with defending a claim for negligence, including compensation and legal fees. For example, if you’re an IT developer and delivered faulty software leading to financial loss for your client, your PI policy can protect you against the claim of negligence made against you.
Financial security
A negligence or omission claim can cost you hundreds of thousands of dollars, if not more! Now, unless you are a large business and have an incredible turnover, this could leave you in financial hardship. PI insurance can provide you with financial security if a claim is ever raised against you. That’s because, as soon as you notify your insurer, you’ll be covered for the cost of defending the claim, including potential settlements or compensation awards.
Reputation protection
The reputational damage PI claims can cause is often underestimated. Yet, if a disgruntled customer spreads the word about your error or negligence, it might be the end of your business. For instance, following the example provided above, let’s say you delivered faulty software to a client. They could easily spread the word in your industry, significantly affecting future business opportunities. Professional indemnity insurance can cover the cost of fixing mistakes and apologising. And this, in turn, can help mitigate or eliminate any reputational damage.
Compliance with industry standards
As discussed, some industries, like the healthcare industry, require professionals to have PI insurance as a condition of practicing. For example, nurses or accountants must have PI insurance to comply with industry regulations and standards.
Peace of mind
Delivering professional services without professional indemnity insurance can feel like having a cloud hanging over your head.
PI insurance can provide you with the peace of mind you deserve by ensuring that you have the financial support required to defend yourself against claims and rectify mistakes.
What else do you need to know about professional indemnity insurance?
Navigating the world of insurance can be challenging, and you might come across terms and concepts you’re not familiar with. Here are some of the most common terms associated with professional indemnity insurance:
‘’Any one claim’’ policy
An “Any one claim” policy refers to a type of liability insurance that covers you up to the full limit for each claim made during your policy period. For example, a professional liability insurance policy with a limit of “any one claim” of $500,000 means that for each claim made against you, the insurance company will pay up to $500,000. This means that you might be responsible for paying any additional costs above the policy limit.
‘’Claims-made’’ policy
Most professional indemnity insurance policies are “claims-made” based. This means that you’re covered for each claim made and notified during the policy period. Note that if you report a claim after your policy ran out, you won’t be covered even if it was made during your policy period.
Aggregate policies
Unlike the “any one claim” policy, you will be covered up to the full coverage limit for all claims made and notified during your policy period. For instance, if two claims were made and notified for $300,000 each and your cover limit goes up to $500,000, you’ll be $100,000 out of pocket.
What happens if my business closes?
Now, you might be wondering whether you need professional indemnity insurance even after you retire or sell your business. And the answer is that you might want to consider a “run-off” cover. That’s because a former client or customer could still make a claim against you for professional negligence on a past project, for instance.
How do I find the best PI insurance?
Finding the best policy for your business needs might be easier than you think.
At upcover, we’re all about simplifying small business owners’ lives. We know how hard building, establishing, and running a business can be. That’s why we’ve partnered with market-leading insurers to provide you with highly tailored insurance policies, including PI insurance.
To receive quotes within seconds, jump on our instant quote generator. Otherwise, you can also give us a call to discuss your needs and see how we can help. You’re just a phone call away from protecting your business, assets, reputation, and hard work ;)
.svg){kind=logo}
.svg)
.svg)
%201.svg){kind=icon}
.svg)
.svg)
.webp)
.svg){kind=icon}
.svg)
