Professional Indemnity, Errors and Omissions, PI, PII or Professional Liability. Whatever you call it or its referred to you as is a cover that has become more of a core policy over the last decade and is something that more people are looking to buy. What is it, who needs it, why and what are influencing premiums?
What is Professional Indemnity Insurance?
Professional Indemnity protects you against losses that arise from legal action due to a negligent act, error or omission by you. Also it can cover you for other issues such as liable, slander and breach of contract.
Who needs Professional Indemnity cover?
While PI covers the ‘traditional’ professionals such as doctors, accountants, solicitors, architects, insurance brokers etc, there are a whole host of new trades that may now consider the need to protect themselves with Professional Indemnity cover. Such as:
Estate Agents, letting agents, property sourcers
Design and Marketing companies
Management and Business Consultants
Although not a compulsory cover there are a number of reasons that may mean that you are required to purchase PI cover. The main reasons being:
- It is a legally required for their profession (Solicitors Act 1974)
- It is a regulatory requirement for their profession
- It is a contractual requirement for their customers
Why do I need PI cover?
As we mentioned above there are some factors that make purchasing the cover a requirement but other influences may mean you want to protect yourself.
PI cover is especially critical for organisations that provide professional advice, offer educated recommendations, design solutions or represent the needs to others.
Without PI cover you subject to thousands of pounds of legal fees and compensation costs due to allegations of mistakes or negligence in the work you’ve undertaken or advice given.
Although policies are tailored to you needs, most PI policies include the following key features:
- Legal defence – if a client files a claim against you then you will be required to defend yourself. This section covers you for the legal expenses associated with this.
- Legal Compensation – if the client wins their case against you they will more than likely be awarded a sum of money that was lost as a result of your advice. Depending on the claim the client could be awarded additional compensation.
- Fidelity Guarantee – you may suffer financial loss or items stolen from your business as a result of fraud, theft or dishonesty by one of your employees. This extension can protect you for this loss
- Run-off Insurance – Even thought you may not be operational you may still have claims filed against you. Run-off cover helps to ensure those claims are picked up by the insurers.
Any one claim or an Aggregate policy?
‘Any one Claim’ and ‘in the aggregate’ refer to the basis of cover for a Professional Indemnity Policy.
Any one claim – this provides cover up to the full limit for each of the claims made during the period of insurance
Aggregate – this type of policy provide cover up to the limit of indemnity but for all claims in that period of insurance
An example of how this works is as follows.
Lets look at policy that has £100,000 limit if indemnity and it has 2 claims during the policy period of £75,000.
If the policy is an ‘any one claim, then both claims for £75,000 are paid by the insurers in full as both fall below the £100,000 indemnity limit
On an aggregate basis the insurers would pay up to the limit of £100,000. As the total value of both claims comes to £150,000 the insurers would pay the £100,000 leaving the insured to pay the remaining £50,000
Obviously having a policy on an any one claim basis is considered to the best option. However due to changes in market conditions it is becoming more difficult to arrange this cover and for some business activities its not being offered.
Cover on a Claims Made basis, what does that mean?
A claims made basis means that the cover protects the organisation for claims notified to the insurers during the period of insurance.
That means that if the wrongful act happens during the period of insurance and you report it during the period of insurance you’re covered. But should you cancel or not renew the cover then cover will end and should a claim reported after that then the policy would not cover the claim.
Therefore its important that you continue with cover even when you don’t think it necessary to ensure protection for your organisation
What is Run off cover?
We mentioned this earlier and this cover protect you against claims that may be brought against you after you have ceased trading. In some sectors having a set period of run off cover is compulsory. If you cease trading, sell your business or retired its important to look into run off cover. Without this any claim that may get reported would have to defended by and funded by your own means
What can go wrong and what kind of claims are paid?
Architects – was sued by his client after the design he had submitted for an extension to the property was found to be flawed. The cost of rectifying the work cost £22,500
Web designer – The designer had used unlicenced images when building a clients website. The client was sued by the image owners for £9,000
Marketing company – when creating the website and printed material they missed a number off the clients phone number. The cost of resolving this issue came to £22,000
Professional Indemnity in the Hard Market
Its is becoming more and more difficult to for certain organisations to get PI cover due to the UK’s hardening market. Whether this is obtaining the limits the require or obtaining premiums that are acceptable.
Recent insurance disasters like Grenfell and the collapse of Carillion have seen the PI market change drastically and some insurers exit the market altogether. Approximately half a dozen insurers have stopped writing PI insurance over the last 12 months and hardly any new entrants
What is a Hard Market? Its typified by a high demand for cover and low supply. Over the pat few years there has been a significant increase in PI claims and with the increase in volume and costs o these claims coupled with a surge in demand for cover has resulted in major shift in the market.
So with the reduction in accessible insurers and increasing claims and costs the majority of insurers have implemented a variety of measures to limit their exposure. These include
- Extra information – it wasn’t too long ago that a simple proposal form was 2 pages long. Now with supplementary forms relating to specific work this could be a 20 page documents with required supporting documents.
- Cover Restrictions – the majority of insurers have reduced cover to being ‘in the aggregate’ rather than ‘any one claim’ as well as increasing excesses and excluding some areas of cover such as cyber
- Premium Increases – to cover losses and provide enough capital to pay the potential of future claims insurers have increased the premium. In some areas such as roofing involving cladding this has increased massively and accessibility to other options are restricted to 1 or 2 insurers
How can you manage the impact?
- Engage with a broker – make sure your broker understands you re requirements and your business. Keep them updated on changes, requirements and they should also keep you abreast of the situation relating to the market conditions
- Start the renewal process early – leaving it until the last minute may result in you having to take terms that are not ideal or not getting the cover in place in time.
- Invest in risk management – this could be establishing high standards and managing quality control, train employees thoroughly therefore reducing the potential of errors, effective supply chain management
We have worked with a number of clients recently to assist them with their Professional Indemnity cover and made sure that they are protected and have cover suitable for their needs. Being independent means we have access to whole of market and are driven to provide you with the right solution
If you wish to discuss your requirement or have any queries regarding PI cover then please contact us on 01204 201800 or email us at email@example.com