Professional Indemnity Insurance covers a business for the cost of defending against allegations of professional negligence (such as giving your client incorrect or wrongful advice) and if unsuccessful, the cost of damages awarded against you.
Indemnity insurance is slightly different to other types of insurance. Whereas with a property or car insurance you are usually given a standard limit of cover (the maximum amount your insurer will pay out), with professional indemnity insurance, you will be given a range of limits to choose from.
What limit should you choose? This is one of the most common questions asked by our customers and there are a number of ways you can decide.
Check With The Client
If you’re undertaking a contract for a specific client, they may well have specified a minimum amount of cover required for you to undertake the contract. If they have, you can simply choose this level of cover when buying your policy in order to meet their requirements.
Check With Your Industry Body
If you are a member of an industry body they may require you to hold a minimum level of cover as a condition of membership. Details about minimum cover requirements are usually contained in your membership agreement, but if you’re unsure, speak to your industry body directly to find out.
Below are some example requirement set by industries professional body
Architects Registration Board (ARB)- This ARB is the governing body for architects. They set the guidelines and standards for architects providing professional services in the industry. Below is an outline of guidelines set by the ARB in relation to Architects Professional Indemnity Insurance: For fee income that is less than £100,000 a minimum limit of indemnity of £250,000 must be held.
The Institute of Chartered Accountants in England & Wales (ICAEW) – The institute of Chartered Accountants is the professional body for accountants in England and wales. The required cover is two and a half times the gross fee income of the firm for its last accounting year (including non-recurring income) subject to a minimum of £100,000 and a maximum of £1.5 million (any one claim and in the aggregate).
Royal Institute of Chartered Surveyors (RICS) Professional Indemnity Policy Requirements – RICS recommend the minimum levels of cover. However depending on the activities you undertake, client requests or project sizes it may be prudent to hold a higher Professional Indemnity Limit.
Last year’s turnover Minimum level of cover
£100,000 or less £250,000
£100,001 to £200,000 £500,000
£200,001 or more £1,000,000
If you simply want to arrange cover for all work you undertake, the best way to choose your limit of cover is to consider a worst case scenario and how much you think it could cost to put right. For each project you are working on, take into consideration:
- The cost of getting a third party to rectify a serious mistake you’ve made – depending on the type of work you do, this could be very costly in itself. For the construction industry rectification cover is a must, it covers the costs incurred in remediation work or mitigating a loss or potential loss that may otherwise result in a claim. A typical example could be underpinning of foundations.
- Any consequential losses your client would incur as a result of your mistake – for example, delay of a project leading losses or missed business opportunities
- Any damages or compensation due to your client which will usually decided by the courts unless a settlement is agreed
- Any legal fees incurred by your client in pursuing you – these can easily run into hundreds, if not thousands, of pounds