Professional indemnity insurance – who needs it?
June 12, 2023In some lines of business, you have no choice – professional indemnity insurance (PII) is essential to the work that you do. In many other endeavours, professional indemnity insurance may provide valuable protection that might make the difference between your business surviving or going under.
Let’s take a closer look at how this specialist type of insurance works – and the people who might need it.
The purpose of professional indemnity insurance
Many businesses provide services that involve advice of some kind or another and recommendations to their customers. That is a perfectly normal, ongoing part of their business operations.
Whether it is well-intentioned advice or activity that involves handling data or intellectual property they own, your customers are entitled to rely on a level of professionalism that will be shared by others in comparable businesses to your own who provide services of a similar kind. In other words, you must afford your customers a degree of professionalism that any other reasonable provider is capable of delivering in similar circumstances.
Furthermore, if you make a mistake – an error of judgment or advice that proves inadequate or even misleading – and your customer suffers a financial loss as a result, then they may sue you for damages on the grounds of any professional negligence on your part they may argue.
Just as the term suggests, professional indemnity insurance offers you and your business protection against claims alleging your professional negligence in a manner that results in your customer’s financial loss.
Who needs professional indemnity insurance?
The scale of those damages, of course, depends on the losses suffered by your customer but also on the kind of business you are running and the level of skill, experience, and professionalism it is reasonable for you to exercise.
Since practically any business may find itself giving some manner of advice from time to time, it is reasonable to argue that some level of professional indemnity insurance might play a part in the armoury or defences useful to any enterprise. If mistakes are made or some piece of advice turns out to be ill-advised, your business will be protected against the claims of professional negligence that might ensue.
But it is also evident that some professional activities – advice, recommendations, data handling, and security of intellectual property for instance – will be more critical than others. In certain circumstances, the financial damage that might be caused because of incorrect, incomplete, or inadequate advice can be substantial – and clients of the business are entitled to expect a suitably exacting level of professional diligence.
When the stakes are this high, the protection – and reassurance given to customers – of professional indemnity insurance is not only desirable but a condition of membership of the relevant profession (and, therefore, the ability to practice).
The Association of British Insurers identifies those professions where PII is a condition of membership of the relevant professional body:
- accountants – compulsory for all members of the Institute of Chartered Accountants in England and Wales (ICAEW);
- architects – required by the Architects’ Code of Conduct;
- chartered surveyors – a requirement of the Royal Institute of Chartered Surveyors (RICS);
- financial advisers – required by the Financial Conduct Authority (FCA);
- solicitors – required to practice as a solicitor; and
- some health professionals – identified by the Health and Safety Executive (HSE).
If your livelihood is in any of these professions, therefore, you have no choice but to arrange the necessary professional indemnity insurance in order to continue working.
Even if there is no hard and fast requirement for the protection of such insurance, however, any business that gives advice and recommendations to its customers – and that is likely to include a very wide range of enterprises – might consider the cover a prudent precaution.