Professional indemnity insurance deals with compensation claims that arise as a result of professional negligence. The insurance covers not just the compensation that’s awarded, but it also covers the legal defence costs and other expenses associated with the compensation claim.
Compensation claims arising from professional negligence can be extremely costly to settle. It is not uncommon for such professional negligence claims to exceed £100,000, particularly when the legal defence costs and other expenses are factored in.
As such, anyone acting in a professional capacity should have professional indemnity insurance to cover them. This includes:
- People working in IT
- Accountants and bookkeepers
- Private tutors, including fitness trainers and the like
Although it would be unwise for any professional to operate without professional indemnity due to the potential for a substantial claim to arise, unlike employer’s liability insurance, professional indemnity insurance is not a legal requirement.
However, some industry bodies and regulatory bodies require certain people to have it. In addition, sometimes having valid professional indemnity insurance is a contractual condition and clients will insist that professionals working for them produce evidence that they have this type of insurance.
Also, because professional indemnity insurance is usually on what’s called a “claims made” basis, professionals who have retired should still have professional indemnity insurance, even though they are no longer working. This will protect them in the event that a claim is made for work they have carried out in the past.
Industry & regulatory bodies
If you’re a member of an industry body, often that industry body will insist that you have professional insurance as a condition of your membership. If you are unable to produce evidence of your professional indemnity insurance, your membership could be cancelled or invalidated.
Some regulatory bodies have also made professional indemnity insurance mandatory for people operating in certain professions.
If you’re required to have professional indemnity insurance as a result of your membership of an industry body or because a regulatory body has made it mandatory, you should check what indemnity limit is specified to make sure that the indemnity limit in your professional indemnity insurance policy is adequate.
It’s quite common for clients to make it a contractual requirement for any professionals working for them to have professional indemnity insurance. What this means is that if you don’t have professional indemnity insurance, the number of projects that you’re able to work on is a lot more limited.
If you’re required to have professional indemnity insurance due to a contractual requirement, the contract will usually specify the minimum indemnity limit. You should check if this is the case so you can make sure that the indemnity limit in your professional indemnity insurance policy is adequate.
It may seem counter-intuitive that you need professional indemnity insurance after you have retired, but in fact, you do. This is because professional indemnity insurance is usually on a “claims made” basis.
The “claims made” basis means that the policy is triggered by the claim being made, rather than being triggered when the professional negligence occurred. Often, a claim is not made against you until quite some time – possibly even years – after the error that led to the claim was made.
If you cancel your professional indemnity insurance when you retire, this means that if a claim comes in after, you wouldn’t be covered even if it’s related to something you did when your professional indemnity insurance was in force.
Many professional indemnity insurers will allow you to buy what’s called “run-off cover” to cater for this situation. This gives you professional indemnity insurance cover during your retirement at a reduced premium, although it only covers pre-retirement professional negligence and would not cover you if you decided to come out of retirement to undertake a one-off project.