A clear explanation of what Professional Indemnity Insurance is, who needs it, and why it matters for businesses that provide professional services or advice.
Understanding Professional Indemnity Insurance
Professional Indemnity Insurance (PI) protects businesses and individuals against claims arising from negligent professional services, advice, or design. If a client suffers a financial loss because of an error, omission, or failure in the professional service you provided, PI insurance covers the cost of defending the claim and any damages awarded.
Who Needs Professional Indemnity Insurance?
Any business or individual that provides professional advice, design services, or specialist expertise should consider PI cover. This includes:
- Construction professionals and contractors who accept design responsibility
- Solicitors and legal professionals
- Accountants and bookkeepers
- Recruitment consultancies
- Architects and engineers
- Surveyors
- IT consultants
- Management consultants
For many professions, PI insurance is a regulatory requirement. Solicitors, accountants, and architects are all required by their professional bodies to hold minimum levels of PI cover.
How Does PI Insurance Work?
Professional Indemnity Insurance operates on a claims-made basis. This means the policy that responds to a claim is the policy in force when the claim is first made against you — not the policy that was in force when the alleged negligence occurred.
This is fundamentally different from occurrence-based policies (such as Public Liability), and it has important implications for how you manage your PI cover over time.
What Does PI Insurance Cover?
A typical PI policy covers:
- Defence costs: Legal fees for defending a claim, whether or not the claim succeeds
- Damages: Compensation awarded to the claimant
- Settlement costs: Amounts agreed to settle a claim
- Claimant's costs: The claimant's legal costs if you are found liable
What PI Insurance Does Not Cover
PI insurance does not cover:
- Deliberate or criminal acts
- Bodily injury or property damage (covered by Public Liability)
- Trading losses or debts
- Contractual penalties that exceed your common law liability
- Claims arising from activities not disclosed to your insurer
Why Specialist Advice Matters
PI insurance is technically complex. Policy wordings vary significantly between insurers, and the difference between a good policy and an inadequate one may only become apparent at the point of claim. A specialist PI broker understands these differences and ensures your cover actually protects your business.