Professional indemnity insurance – protect yourself if you sell your skills
Professional indemnity insurance is something you should consider if your business involves selling your knowledge or skills as opposed to a tangible product, or if you handle sensitive data for a client or are responsible for their intellectual property. It covers you for claims that might arise if you make a mistake or are found to be negligent in carrying out your duties as a service provider.
Professional indemnity insurance is a legal requirement for certain professions and some service providers may not be allowed to practise unless they have it in place as part of their company set up. This group includes insurance brokers, financial advisers, solicitors, architects, accountants and mortgage brokers. The risks involved for people in these professions are pretty obvious – poor advice or negligence could prove to be disastrous either financially or personally for their clients, however, lots of people working in creative industries like advertising and design also choose to have professional indemnity insurance, just to be on the safe side. Though the risks might not be as high, an unhappy client could well decide to sue if they had forked out huge amounts of money for an advertising campaign that didn’t produce the desired results. In a nutshell the main difference between professional indemnity insurance and public liability insurance is that the ‘damage’ suffered by the claimant is usually financial or personal rather than a physical injury.
One thing you should always do when you begin working with a new client is set out your terms conditions very clearly in a contract. This is good business practice and will offer you a degree of cover, however, it won’t be a watertight disclaimer as there are some statutory duties that you cannot avoid. Most professions will have a regulatory or industry body that will provide you with a guide to the cover you must have detailing things like minimum policy wordings. They may even offer the cover themselves, which would mean you can rest assured you have the right level of cover for your profession.
An important thing to bear in mind with professional indemnity insurance is that the risks are very different for different professions so it’s essential that you get cover from an insurance specialist who really understands your business. Be wary of any insurers who are not authorised by the appropriate professional body and avoid getting your cover with them.
Many providers will offer a standard cover option and then allow you to tailor your policy to suit your specific business needs. Chat things through with your provider and make sure that they understand what you need from your cover and that they are aware of any governmental regulations concerning your profession. If you have any agents or contractors working on your behalf, check that they have sufficient cover for themselves and also double check your policy to make sure that you’ll be protected if they fail to carry out their duties satisfactorily.
Another thing to bear in mind that most professional indemnity insurance will only cover you for claims made while the policy is active. So, for example, if you provided a service for someone and they make a claim against you six months later, if your policy has run out by the time they make the claim, you won’t be covered, even though your policy was active when you carried out the work. For this reason it’s a good idea to have a run-off period which may be protected by an Extended Reporting Provision or ERP – just in case.
Finally, when you are shopping around for the right cover, don’t forget to make your provider aware of any risk management practices within your organisation as this will have a significant bearing on how they view your business, and, ultimately, the premium you pay.
