Do you have the right professional indemnity limit for your industry?
Professional indemnity cover is one of the staples of contractor insurance. 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, which can vary from industry to industry. But what does professional indemnity insurance do?
Professional indemnity is there to protect you against claims of negligence should you, for instance, make a mistake that has negative consequences for your client. It also covers against occurrences such as loss of data or documents, defamation, libel, and breach of intellectual property.
So, if you do make a mistake and are viewed as having been negligent, your professional indemnity insurance will cover the costs of any compensation you have to ultimately pay, as well as any legal costs, and the cost of fixing the mistake. Depending on your industry, this could cost tens or hundreds of thousands – or even millions – of pounds so professional indemnity cover means you do not have to think about using savings, selling your home, or even having to declare bankruptcy.
What does a professional indemnity claim look like?
We know it can be difficult to visualise exactly what circumstances might trigger a professional indemnity claim, so we’ve pulled together some example claims from industries we represent.
You’re a software developer who has been contracted to design and implement bespoke client management software for a pension provider. You make a mistake in the coding which results in a data breach when client information is sent to the wrong people, leaving your client liable. The mistake is traced back to you and they deem you negligent, suing for compensation.
Your professional indemnity cover pays out the compensation, covers the legal fees, and pays for your original error to be fixed.
You’re designing a new wind farm set to provide offshore renewable energy. However, it emerges you have made mistakes in your measurements which result in huge delays to the implementation of the project – not to mention significant additional costs. Your client seeks to recoup the enormous costs from you since you were at fault, but your professional indemnity insurance sorts this for you, along with all legal fees.
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 protects you by covering all costs incurred by you.
How do I calculate the right professional indemnity limit for me?
As standard, Kingsbridge offers £1 million any one claim professional indemnity cover (unlimited in the aggregate) but you are able to set your own level when you get a quote. Depending on your industry and your own unique circumstances, you may well need more than £1 million.
Being under-insured is just as bad as not being insured at all. After all, £1 million of cover is no good if you have to pay out £3 million in compensation and legal fees. So, making sure you accurately calculate how much professional indemnity cover you need (without paying for more than you need) is vital to provide you with peace of mind, and your clients with confidence.
But how do you make that calculation?
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 and this will state a minimum acceptable level of cover. Additionally, if you’re a member of any professional bodies, they may have a minimum professional indemnity level you have to adhere to.
Remember that these are minimum requirements.
The value of your contract
If your client makes a claim against you, they will likely want to recoup the money they’ve spent on you. However, you would also be liable for any losses they have suffered so this could be added on top, as could costs from 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.
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.
Remember, your cover isn’t just for your current contract, it’s for past work too. Should a claim arise from a previous project, you will need your professional indemnity insurance to cover it. So, if your past projects are of higher value than your current ones, be sure to factor this in.
Professional peace of mind
As all insurance, you purchase professional indemnity with the hope you will never actually need it. However, knowing you hold adequate cover can give you tremendous peace of mind that you will be protected financially should a mistake happen.
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 client, that in turn mean a legal and financial headache for you. .
While most clients and recruiters will give you a minimum acceptable level of insurance, 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.
Kingsbridge offers professional indemnity cover as part of its standard business insurance package. You can get a quote online on call our expert team on 01242 808740 to discuss your needs and we can help make sure you have the right level of cover for you.