Professional indemnity insurance can be difficult to find in the current market, especially for professions such as construction, architecture, surveying, engineering, and even accountancy and legal.
Since the Grenfell tragedy, the market has tightened and now fewer insurers are willing to insure certain risks, resulting in some professionals having to search harder to find coverage and, when they do, paying higher premiums.
So what is a professional to do when they need professional indemnity insurance? Let’s take a look at the best ways to go about getting professional indemnity insurance in the current UK market.
According to NimbleFins, getting professional indemnity insurance quotes can be made easier by using a comparison site. Comparison engines can connect you with both brokers and insurers that can insure your profession. Brokers are especially useful for professionals struggling to find cover or a cheap price, as they know the market and have a sense of which insurers might be most suitable for a particular situation.
Some lower-risk professionals and businesses may not need a broker and might be able to source a cheap-enough professional indemnity insurance policy from direct insurers like AXA and Direct Line, however.
Compare professional indemnity insurance
A business owner can compare professional indemnity insurance themselves by contacting brokers or insurers directly or by using a comparison site to initiate the process.
It should be remembered that insurance agents work for the insurers and so may not be offering the most competitive price you could find in the wider marketplace.
Often, businesses use brokers who can shortlist several options, including more specialist providers. Brokers can specialise in different industries, and charge different fees, so it’s worth looking around for one that knows your industry.
If using multiple brokers you should ask to know the names of the underwriters they will use as there can be limited pools for some industries. It is useful to avoid overlap and ensures you are getting full coverage of the market.
Be sure to also ask the broker their fees and how much work they do for businesses in your field.
When getting a quote online or over the phone, a business owner is likely to have to answer questions including:
- What is the maximum compensation that could be awarded against you or the business?
- What legal fee limit do you want?
- How big are the contracts you are dealing with? The larger the contracts, the bigger the risks and financial penalties the client could face if something goes wrong.
- How much would it cost to put right a mistake you’ve made?
- What is your turnover?
Some of these questions can be tricky to answer and so this, coupled with the fact there are more specialist insurance providers in this field, means many opt to use a broker to secure their professional indemnity insurance.
It is worth looking at reviews on sites such as Trustpilot, Reviews.co.uk, and Google. As well as the average rating, take a look at some of the poorer reviews to see if any red flags are raised, plus consider the number of reviews made as a small number can mean they are less reliable.
Some industry regulators or professional bodies demand professional indemnity insurance as part of the terms of membership or as industry requirements. If so, a business should enquire about the minimum coverage limits before setting requirements to compare policies. The Financial Conduct Authority, for example, insists accountants are covered for €1,250,000 for a single claim and an amount equivalent to 10% of annual income, up to £30 million in aggregate.
Cost of professional indemnity insurance
The cost of professional indemnity insurance varies from £45 to £1,000s depending on factors like the industry, risks, size of the business, and value of the work it does.
A freelancer carrying out a relatively low-risk service would find themselves at the lowest end of the scale. But high-risk industries like architecture or construction, where mistakes can cost tens or hundreds of thousands – even millions – of pounds to repair, are unlikely to find a policy under £1,000.
Accountants, financial advisors, or insolvency practitioners can also make mistakes worth a lot of money or could be liable for negligence which could see a client break the law.
Analysis by insurance advisors NimbleFins found the cost of professional indemnity insurance could be as little as £45 for an independent financial advisor for a basic package with £2,000,000 of cover. This increased to estimated costs for sample professionals of £114 for a software developer, £174 for a management consultant, £300 for a commercial builder, and £1,374 for an architect. Costs can be much higher from one business to the next, however.
It is important to find several quotes to compare as one provider may not want to take on a business’s risks at that time. If it has taken on many businesses in a similar field or has recently had to meet a large claim, it may be less inclined to add more risk to its books.
Buy professional indemnity insurance
Once you have compared quotes and decided on the best policy, simply call a provider directly, or if using a broker, they will do it for you.
When buying professional indemnity insurance it is worth ensuring the policy has a ‘claims made’ clause – or a retroactive date when changing providers – to protect against claims made before the current policy starts. As long as the cover has been continuous, an insurer will honour claims for incidents that occurred before the policy start date. This is explained further earlier in the article.
A second consideration is whether a business needs ‘run off’ cover. This is to protect against the threat of future claims made after the contract has come to an end. It may take some time between the work being done and an incident to emerge or financial loss to be calculated, and so a business needs to ensure it has adequate cover in the aftermath of contract completion.
Claims Made Cover
It is worth noting that professional indemnity insurance must be continuous to maintain appropriate protection. Often it can take years between a job being done and a complaint being made, simply because the value of an incident can take a long time to be realised. So a business needs to have continuous cover from when the incident took place through to when the complaint is made.
Many policies are agreed on a ‘claims made’ basis which means a provider will honour a claim about an incident that took place before the policy was renewed, so long as there wasn’t a break in cover. However, if there was a break, even if only for a day, the clock resets at the first date the policy is renewed again.
For example, a business has insurance between 2015 and 2017, and then again in 2018 until the present day. If a claim is made today about an incident that took place in 2016 an insurance company would not meet the claim. It doesn’t matter that the business had insurance in 2016 and now – the issue is that there was a break in cover, so the insurance provider will only acknowledge claims for incidents as far back as 2018.
A business owner can change providers and still be covered for retrospective claims if they have a ‘retroactive date’ agreement in the policy. This refers to policies written on a ‘claims made’ basis, and also covers when there is a change of policy provider.