Professional Indemnity Insurance: Who Needs It and Why

What Is Professional Indemnity Insurance?

Professional indemnity (PI) insurance protects businesses and individuals against claims made by clients who allege they have suffered a financial loss as a result of negligent advice, services, or designs provided by the insured. It covers the cost of defending the claim and any damages or compensation awarded.

PI insurance is distinct from public liability insurance, which covers physical injury and property damage. Professional indemnity specifically addresses financial losses arising from professional errors, omissions, or negligent acts in the course of providing professional services.

Who Needs PI Insurance?

Any business or individual that provides professional advice, designs, or services to clients should consider PI insurance. This includes, but is not limited to:

• Architects, surveyors, and structural engineers
• Accountants, tax advisers, and bookkeepers
• IT consultants, software developers, and web designers
• Management consultants and business advisers
• Solicitors and legal professionals
• Insurance brokers and financial advisers
• Estate agents and property managers
• Marketing agencies and PR consultants
• Recruitment consultants
• Healthcare professionals (doctors, dentists, physiotherapists)

The common thread is that these professionals provide advice or services that clients rely upon to make decisions. If that advice turns out to be wrong, incomplete, or negligent, the client may suffer a financial loss and seek compensation.

What Does It Cover?

A professional indemnity policy typically covers:

• Negligent acts, errors, or omissions in the provision of professional services
• Breach of professional duty
• Unintentional breach of confidentiality
• Defamation (libel and slander) arising from professional activities
• Loss or damage to documents and data in your care
• Intellectual property infringement (unintentional)
• Legal defence costs, even if the claim is ultimately unsuccessful
• Court-awarded damages and settlements

It is important to note that PI insurance does not cover deliberate wrongdoing, criminal acts, or claims that were known about before the policy was taken out. It is designed to protect against genuine mistakes and oversights, not intentional misconduct.

Legal and Regulatory Requirements

For many professions, PI insurance is not optional — it is a regulatory requirement. Professional bodies and regulators that mandate PI insurance include:

• The Financial Conduct Authority (FCA) — for insurance brokers, financial advisers, and other regulated firms
• The Solicitors Regulation Authority (SRA) — for solicitors and law firms
• The Architects Registration Board (ARB) — for registered architects
• The Royal Institution of Chartered Surveyors (RICS) — for chartered surveyors
• The Institute of Chartered Accountants (ICAEW, ICAS, ACCA) — for accountants
• The General Medical Council (GMC) — for doctors (via medical defence organisations)

Even where PI insurance is not a regulatory requirement, it may be a contractual requirement. Many clients — particularly large corporations, government bodies, and public sector organisations — require their suppliers and contractors to hold a minimum level of PI cover as a condition of their contract.

Understanding Claims-Made Policies

Professional indemnity insurance operates on a "claims-made" basis. This means the policy responds to claims that are first made against you during the policy period, regardless of when the alleged error or omission occurred. This is different from "occurrence-based" policies (such as public liability), which respond to incidents that occur during the policy period.

Most PI policies include a retroactive date — the earliest date from which claims are covered. If you have maintained continuous PI cover, the retroactive date should go back to when you first took out the policy. Switching insurers should not affect this, provided there is no gap in cover.

Choosing the Right Level of Cover

The appropriate level of PI cover depends on several factors:

• The nature of your profession and the potential severity of claims
• Your annual turnover and the size of your contracts
• Regulatory minimum requirements for your profession
• Contractual requirements from your clients
• The number of clients you serve and the complexity of your work
• Your claims history

As a general guide, many professionals start with cover of £250,000 to £500,000 and increase it as their business grows. However, some professions and contracts require significantly higher limits — £1 million, £5 million, or even £10 million is not uncommon for larger firms or high-value projects.

Common PI Claims

Understanding the types of claims that arise in your profession can help you assess your risk and choose appropriate cover. Common PI claims include:

• Architects — design errors leading to structural problems or planning failures
• Accountants — tax advice errors resulting in penalties or overpayment
• IT consultants — software failures causing business disruption or data loss
• Surveyors — failure to identify defects in a <a href="/property-owners">property</a> valuation or survey
• Solicitors — missed deadlines, incorrect legal advice, or conveyancing errors
• Insurance brokers — failure to arrange adequate cover or advise on policy terms
• Recruitment consultants — negligent references or misrepresentation of candidates

Next Steps

If you provide professional advice or services, PI insurance is an essential part of your risk management. It protects your business, your reputation, and your clients' interests. If you also employ staff, you will need employers' liability cover.

Focus Insurance Services can help professionals and businesses find appropriate PI cover tailored to their specific profession and risk profile. Learn why using a broker matters for specialist covers. Contact our team for a no-obligation discussion about your professional indemnity insurance needs.