How to determine what Professional indemnity insurance do I require?

Three factors to consider when determining “how much Professional indemnity insurance do I require?”

1. Your profession (your liability)

What do you do for a living? What are the things that your clients want you to do for them? What could possibly go wrong? What will it cost to fix it in the worst-case scenario?

Also, how big is your company? If you have a lot of clients or a small number of high-value clients, your turnover rate is relatively high. In either case, claims will be more likely and/or for more money.

Your professional indemnity insurance should cover the complete cost of repairing your mistakes as well as the legal costs of defending yourself against a lawsuit.

For instance, if a client sues you, the entire cost to correct your error, pay them compensation, and cover each party’s legal costs would be, let’s say, £250,000.

If your level of insurance is only £200,000, you’ll have to fund the £50,000 gap yourself. Ouch.

2. For whom you do it (your clients)

Do you have small or large global companies as clients? Are they employed in ‘rich’ sectors like IT, banking, or finance? Are they strict or more relaxed?

You face challenges if you work as a consultant or contractor. If they believe there is a basis for a claim, large corporations won’t be reluctant to unleash the power of their legal team or corporate lawyers. If they do make a claim, they won’t be complacent.

Your policy needs enough coverage to cover all the costs of defending you and compensating your client if you find yourself the target of an expensive-looking lawsuit.

3. The value of it (your contract values)

What are your most common and expensive fees? What is a typical project’s overall cost? Is your client hoping that your effort will increase sales or reduce expenses?

Never think that you can only be held liable for the sum your client has paid you.

You can, to some extent, restrict your liabilities through a contract. But you’ll be responsible for it if something goes wrong and a judge rules that you’re accountable for more.

Your customer will sue you for their entire loss if they claim that your error caused the delay or disruption of a larger project that your work is a part of. not just your contribution to it.

Remember that many projects can cost several millions of pounds, especially those that are construction-related or include significant IT improvements. Such a charge should not be delivered to your door.

Other factors to take into account when determining how much professional indemnity insurance is necessary

legal fees

Regardless of the legality of the claim, professional indemnity insurance shields you from accusations of negligence and the expense of defending yourself in court.

This is crucial because even if you are positive you made no mistakes, clients or other parties may nonetheless accuse you of doing so. And in that case, staying silent is not an option.

It will cost money to enlist a lawyer’s assistance. If the claim is intricate or drawn out, the expense of your defence might quickly reach the tens or even hundreds of thousands of pounds.

As a result, be sure to select a level of coverage that will cover any prospective legal fees.

Any one claim or “in the aggregate”

Nearly as crucial as the level of coverage is the kind of professional indemnity policy. This is why:

In the aggregate

The most the policy will pay for all claims made against you in a given policy period is, for example, £250,000 if you purchase a policy with cover “in the aggregate” of that amount.

You might find yourself in a pickle if you had, let’s say, three claims against you and the total costs of those claims exceeded £250,000.

Any assertion

On the other hand, if you purchased £250,000 in coverage for “any one claim,” you are protected for an unlimited number of claims with a $250,000 cap on each.

I recommend giving this a little further reading. For additional information on these two categories of policy, click here.

Prior work

An alert regarding lowering your degree of cover Customers that have been working on high-value contracts that have ended occasionally contact us about this.

Reducing your level of coverage has the drawback of changing your policy retroactively as well. Always assess your prior work and if your insurance is still adequate to cover any claims that may result from it.

The majority of claims stem from work and contracts you’ve already finished, and they will be subject to the level of insurance you have right now rather than what you had when the work was completed.

Specific PI specifications

However, not everyone must hazard a guess as to how much professional indemnity insurance they require. Certain contracts stipulate a minimum standard, particularly in the public sector.

There are requirements for some professional organisations, such as those for accountants and architects. For CPAs and accountancy firms, membership normally requires a level of insurance equal to at least 2.5 times their gross fee income from the previous fiscal year.

Still uncertain about the extent of your professional indemnity coverage?

If forced to give a specific number, we’d advise choosing coverage worth at least £250,000. Instead of the sum of all claims, it is ideal for each claim. Lower degrees of coverage are available, but the price difference is occasionally so minor that it is frequently not worthwhile to bother. If it’s any assistance, our £1m level of PI coverage is the most popular.

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