Professional indemnity insurance may be needed by limited companies that sell advice, knowledge, or a bespoke service. If they make an error, give bad advice, or poor service that sees a client lose money, the client could have grounds to sue for damages.
A professional indemnity insurance policy covers the costs to defend such a claim and pays any damages to claimants should the business be found liable.
Professional services could be in the form of an expert selling its recommendations to a client, carrying out a strategy it has advocated, or even creating or selling skilled workmanship.
If a limited company that sells these services could cause an issue that sees a client lose money, it should protect itself with professional indemnity insurance.
Which limited companies need professional indemnity insurance?
Limited companies need professional indemnity insurance in the same circumstances a sole trader or freelancer would. If it runs the risk of being sued for costing a client money (or in some cases, bodily injury) due to negligence or a mistake, it needs professional indemnity insurance.
Some industries are required to hold professional indemnity insurance to be members of regulatory bodies. Many limited companies – particularly bigger ones dealing with higher value contracts – are required to hold professional indemnity insurance as part of their agreement with their client.
Although it is not required by law, the following industries should strongly consider having a professional indemnity insurance policy:
- Financial advisors
- Insurance brokers
- IT specialists
- Healthcare professionals
- Planning and surveyors
- Risk management
- Design and construction
- Interior designers
- Coaching, training, and education
Other industries which should consider professional indemnity insurance policies include, but are not limited to: Tradesmen, writers, PR agencies, advertising agencies, marketing agencies, business analysts, freelancers, event manager, mortgage brokers, recruiters, security consultants, software developers.
Some industries need a specialist type of professional liability cover. For instance, medical professionals could buy medical malpractice, and media professionals should consider media liability.
If a limited company is unsure whether it needs professional indemnity insurance, it should consider whether it does any of the following:
- Handles sensitive data on behalf of its client.
- Sells a service that is subjective and runs the risk of a client saying a brief has not been met.
- Gives expert advice regarding professional services.
- Is exposed to claims of professional negligence, e.g., giving incorrect advice or making a professional mistake.
It should also consider the cost a client may face if there was a mistake or negligence in its work and the risk of an incident taking place. If the business does not think it could cover the fees – which can easily run into tens of thousands of pounds for just a small incident – it would be wise to secure professional indemnity insurance.
What are public liability and professional indemnity insurance?
Public liability is different from professional indemnity insurance.
Public liability insurance covers legal costs and compensation if a third party, for example, a client, supplier, or member of the public, is injured or has their property damaged because of a policyholder’s business. This could be at the business premises or the site of a job.
Professional indemnity insurance does not usually cover bodily injury, but it can if the injury is caused by the policy holder’s negligence, error, or omission.
Surveyors, for example, could cause injury if they give the wrong assessment of a building. With fears of injury or even death, if the wrong recommendation is given, insurers have even become reluctant to insure those carrying out External Wall Surveys on tall buildings in the wake of the Grenfell Tower fire. It has led to the Government creating a professional indemnity insurance scheme to take on the risk.
Where to get professional indemnity insurance quotes
Professional indemnity insurance quotes can be obtained from many household insurance names, with Direct Line and AXA just some of the general insurance companies offering this business cover. There are also many smaller, more specialist business providers that offer professional indemnity insurance. And via sites like NimbleFins, you can compare quotes and get access to multiple professional indemnity providers all at once.
With the product being so specialist, many businesses will end up using a broker to find the right policy. It can be difficult for a business to know the exact level of risk their work carries, plus the amount they could be liable to pay.
While it is possible to directly apply for quotes with insurers, it is worth remembering an agent works for the insurance provider and so may not offer the most competitive price.
A broker will guide businesses through the risk analysis to work out the level of cover needed and then go to several insurers to find the best price.
If a business decides to work with two brokers, it is advised to ask which underwriters they will use. There is a smaller pool of underwriters in the professional indemnity insurance field than there would be for a much more common cover, such as home insurance. Therefore, they could be going to the same underwriters and bringing back the same quotes.
Be sure also to ask the broker their fees and how much work they do for businesses in your field.