How much professional indemnity insurance do I need?

Professional indemnity insurance cover is one of the staples of many business insurance packages, along with public liability insurance and employers’ liability insurance. It’s usually a contractual requirement, with most end clients or recruiters requesting contractors have a specific level of cover. This can vary from across professions, how do you know how much you need? First, let’s take a quick look a what it covers – this will help you calculate the cover required.

An overview of professional indemnity insurance

Professional indemnity (PI) is there to protect you against the risk of claims of negligence should you, for instance, make a mistake that has financial consequences for your client. It can also covers against occurrences like loss of data or documents, defamation, libel, and breach of intellectual property.

It can cover you for things including:

• Professional negligence
• Loss of private data or documents (e.g. confidential client information)
• Financial loss/loss of goods
• Defamation (including libel and slander)
• Breach of copyright or confidentiality (e.g. intellectual property rights)

So, if you make a serious mistake and are viewed as having been negligent, your PI insurance covers the costs of any compensation you have to ultimately pay. It can also cover any legal costs, the cost of fixing the error, and potentially include recuperating lost sales. Depending on your industry (or specific service/profession), this could cost tens or hundreds of thousands of pounds (or worst-case scenario, millions). Professional indemnity insurance protects you from having to dig into your own pocket. But even if you know it’s something you should have, you need to know how much PI cover you need.

How much professional indemnity insurance do I need?

Risking being under-insured can have disastrous consequences. After all, £1 million of cover is no good if you have to pay out £3 million in compensation and legal costs. So, making sure you accurately calculate how much cover you need (without paying for more than you need) will give you peace of mind, and your clients with confidence.

As standard, Kingsbridge offers £1 million ‘any one claim’ professional indemnity insurance cover but you’re able to set your own level of cover when you get a quote. Depending on your industry and your own unique circumstances, how much cover you need will vary – you may well need more than £1 million.

One of the most common questions regarding PI insurance is “how much professional indemnity insurance do I need?”. Here are a few factors to take into account:

Contractual obligations

The first thing to look at is your contractual requirements. Your recruiter or end client will almost certainly have a clause regarding insurance in your contract stating an acceptable minimum level of cover. Additionally, if you’re a member of any professional bodies, they may have a minimum required level of professional indemnity you have to adhere to.

Remember that these are minimum cover requirements – you need to use your own circumstances to determine an appropriate limit.

The value of your contract

If your client makes a claim against you, they’ll likely want to recoup the money they’ve spent on you as well as the full financial impact of your negligence – you could be liable for any losses they’ve suffered and any additional costs for the wider project. Therefore, the value of your contract isn’t just what you are being paid, it’s the value of the overall project to your client.

Legal costs

In the event of a claim against you, you could be liable not only for your own legal costs, but those of the other party. These costs can be eye-watering, so you should factor these in on top of potential compensation when you calculate your insurance level.

Past work

Remember, your PI insurance isn’t just for your current contract, it’s for past work too. Should any claims arise from a previous project, you will need your professional indemnity insurance to cover it. So, don’t go straight for the minimum amount of cover you think you’ll need for in-flight business – if your past projects are of higher value than your current ones, be sure to factor this in. It’s best to use the minimum level you predict as a guide but also consider possible unforeseen events.

Examples of professional indemnity insurance claims

We know it can be difficult to visualise exactly what circumstances might trigger a PI insurance claim, so we’ve pulled together some example claims from industries we represent.

IT sector

You’re a software developer who has been contracted to design and implement bespoke client management software for a pension provider. A mistake you make with the code results in the system breaking and going down for a few hours. The client is affected by financial loss due to the inability to use the system to manage their business and have to spend resources fixing the issue. The mistake is traced back to you and they deem you negligent, resulting in them suing you.

Your professional indemnity could cover the compensation, including any consequential losses as well as protecting you from legal fees.

Energy sector

You previously designed a new wind farm set to provide offshore renewable energy. However, it emerges that while providing the service, you made mistakes in your measurements which result in huge delays to the implementation of the project – not to mention significant additional costs. Your client realises this after your contract ends but seeks to recoup the enormous costs from you since you were at fault. The client sues you, but your professional indemnity insurance would look to sort this for you, along with all legal fees incurred.

Engineering

You’re an engineer working on a new road infrastructure project in a busy town centre. It emerges that you’ve provided incorrect drawings for the setting out of drains, which causes delays as it has to be fixed on site by the main contractor. The loss adjusters find that you are liable, but your professional indemnity insurance can protect you by covering all costs incurred by you from the claim.

Professional peace of mind

As with all insurance, you purchase professional indemnity insurance with the hope you’ll never actually need it. But when it comes to your livelihood, you don’t want to risk it. Knowing you hold adequate cover can give you tremendous peace of mind that you will be protected financially in the worst-case scenario.

As our examples demonstrate, it could be something innocuous – a line of code here, a millimetre there – that results in delays, costs, and other problems for your clients, their services, and their customers. that in turn mean a legal and financial headache for you.

While most clients and recruiters will give you a minimum acceptable level of cover, remember that you know your own financial circumstances best. If your own calculations – and your own knowledge of your finances and your industry – tell you that you need more, then insure yourself appropriately, to a level you feel happy with.

Is there a maximum amount of PI cover you can get?

Many providers will have their own limits of cover available with their insurance packages. Unlike car insurance for example (which normally has a standard limit of cover), many business insurance providers will offer a range of limits to choose from so you can make sure you have a limit that fits your needs.

Once you’ve calculated how much professional indemnity insurance you’ll need, you can use this to help inform you of a suitable maximum limit.

Professional indemnity insurance with Kingsbridge

As always, our in-house insurance experts are on hand to help you get the right cover for you. If you’re still asking “how much professional indemnity insurance do I need”, or you have any other questions or uncertainties, don’t hesitate to get in touch.

We offer professional indemnity insurance as part of our standard business insurance package and contractor insurance. You can get a quote online or call our expert team on 01242 808740 to discuss your needs and we can help make sure you have the right level of cover.