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Professional indemnity insurance basics

Professional indemnity (PI) insurance, also known as professional liability insurance, is a type of liability insurance designed to protect professionals who provide companies and individuals services and advice from bearing the full cost of defending themselves against civil lawsuits and claims of negligence made by clients. It is worth noting that PI insurance cover is usually awarded on a claims-made basis.

How it works

Professional indemnity insurance protects you against claims of damage or loss made by third parties if you are found to have made mistakes or been negligent in all or some of the services you provide. The coverage focuses on alleged negligence or failure to perform on matters that result in financial loss and omissions or error in the products sold or services delivered by the policyholder.

If, for example, you sell skills or knowledge it may be in your best interest to take out PI insurance in order to cover any legal costs that may arise during the course of your service delivery. In this case, PI would protect you against potential legal action that ordinarily would not be covered by general liability insurance policies that deal with more direct forms of damage or harm.

PI coverage may provide for legal defence costs, including the costs for defending yourself against claims that turn out to be baseless. It is worth noting that the policy only covers claims that are made when the policy cover is in effect. You, therefore, need to ensure that you are always properly covered.

Who requires professional indemnity cover?

Many professionals require PI insurance as part of their professional authorisation or as part of government regulatory requirements. Among the professionals who require PI are architects, accountants, insurance brokers, solicitors, financial advisers and accountants. Public Relations agencies, advertising companies, consultants and designers may also find they need PI insurance cover.

How to minimise professional indemnity claims

A way to minimise professional indemnity insurance claims against you is to ensure all projects you handle are well documented. Outline clearly specified responsibilities in your contracts with clients beforehand. Make sure you address all complaints swiftly and honestly. It can also help a lot if you are a member of the Association of British Insurers (ABI). Also, consult a suitably experienced insurance broker for professional advice before you take out your insurance. This can help you get answers to any questions you may have and recommendations on suitable PI insurers you can work with.

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