Even the best, most well prepared individuals and organisations occasionally get things wrong and make mistakes. In the context of business, mistakes that result in a financial loss for one of your clients can have pretty serious repercussions.
If a business proceeds to take legal action against you, the legal fees and potential compensation payments can become a serious problem. Thankfully, you can mitigate against this situation with Professional Indemnity Insurance.
Professional Indemnity Insurance (PII) is a type of coverage designed to protect professionals and businesses from financial losses arising from professional mistakes, negligence, errors, or omissions. It covers the costs associated with legal defence and any compensation awarded to a client if they suffer financial loss due to the professional’s alleged negligence or failure to perform.
PII is crucial for many types of businesses, in particular those that provide professional services or advice, such as consultants, lawyers, accountants, architects, engineers, etc..
Let’s explore more about what PII is, who is it for, what it covers, and finally how to fund your PII premiums.
Note for Practising ACCA Members:
Due to notable changes in the insurance market in recent years, ACCA have changed some of the regulations around Professional Indemnity Insurance recently. The changes come into effect for all renewals after the 1st of January 2024.
PII is mandatory for all ACCA members with practising certificates in the UK and Ireland, so make sure that your next policy complies with the latest regulations. ACCA state that the new regulations are in place to make things simpler, more practical and better aligned with the other professional accounting bodies. Some of the highlights include changes to the ‘total income bands’ and changes to PII limits.
You can read about the new regulations in more detail on the ACCA website.
What is Professional Indemnity Insurance & How does it work?
Professional Indemnity Insurance (PII) is liability insurance that covers firms when a third party claims to have suffered a loss, usually due to professional negligence.
The variety of mistakes that come under the umbrella of ‘professional negligence’ is vast. Perhaps you gave some consulting advice that harmed your client, or maybe you designed them an advert with unlicensed images. Essentially, if your client has reasonable proof that your service caused them some financial loss then you are at risk of legal action being taken against you.
If a client does decide to sue you then you’ll have to fund a lawyer to defend your business and you’ll also have to pay any damages if found liable.
This potential for future lawsuits if you ever slip up can understandably be quite a worry for businesses, particularly those that offer technical, professional advice as their primary service (such as Solicitors, Accountants, etc).
By taking out PII cover you are not only protecting your business finances in such an event, you are also taking away the considerable burden that such a risk puts on your team.
Which businesses should consider PII?
There is a pretty extensive list of the types of people or businesses that should consider PI insurance. In simple terms, anyone that provides consulting services, design work, or those that deal with sensitive data should consider it.
This includes lots of professions, including (but not limited to): Solicitors, Accountants, Architects, Financial advisers, Photographers, Marketers, Designers, Consultants, Publishers, Recruiters, Personal Trainers, Dieticians.
Ok, so you’ve decided you need to look into Professional Indemnity Insurance but now you’re wondering what is and isn’t covered.. Let’s dive into this next!
What is and is not covered with PII?
Generally speaking, PII covers the financial side of a claim. This means that it covers both the legal costs and any compensation that you are ordered to pay.
What is Covered with Professional Indemnity Insurance:
Professional Negligence:
PII covers claims arising from professional negligence, errors, or omissions in the services provided.
Legal Costs:
The policy often covers legal defence costs associated with a claim, including hiring lawyers and court fees.
Compensation to Clients:
PII provides coverage for compensation awarded to clients if the court deems your professional mistakes responsible for the financial loss.
Data Breach Liability:
Some policies may include coverage for liability arising from data breaches or unintentional disclosure of sensitive information.
Libel and Slander:
Coverage can also include libel and slander claims resulting from professional services.
Contractual Disputes:
Professional Indemnity Insurance can also cover legal costs and damages arising from contractual disputes related to professional services.
What May Not Be Covered with Professional Indemnity Insurance:
Intentional Wrongdoing:
PII typically does not cover intentional or criminal acts committed by the professional or business.
Fraud:
Claims arising from fraudulent activities are unlikely to be covered.
Non-Professional Activities:
Activities that fall outside the scope of professional services may not be covered.
Known Claims:
If you are aware of a potential claim before you take out the insurance, it might not be covered.
Property Damage or Bodily Injury:
PII is focused on financial losses, and it may not cover physical damage or injury caused by professional services.
Fines and Penalties:
Fines or penalties imposed by regulatory bodies may not be covered.
Before taking out any PII policy make sure that you carefully review the terms and conditions to understand the specific coverage provided. Additionally, discussing the policy with an insurance provider or broker can help clarify any uncertainties and ensure that the coverage aligns with the specific needs of your business.
How much does it cost and how to fund the premiums?
As with most policies of this nature the actual amount that it costs you to take out the policy is contingent on your specific circumstances and requirements. With PII in particular the premiums vary enormously from business to business.
For example, a one-man-band graphic designer might only have to pay £10-20 per month for adequate coverage, whereas a solicitors firm will likely have a premium running well into the thousands. The main three factors that will influence the cost for your business are (1) the industry you are in, (2) your revenue (3) prior legal claims
To get a rough idea of the premium you could face – It is often between 0.25% and 5% of annual turnover (with min requirements ranging from £100 to £1,000).
Funding options
If you are in an industry that requires a higher premium for PII, such as Solicitors, Accountants & IFAs, then the cost of your policy can put a strain on your cash flow position.
To mitigate this, consider covering the cost with a business loan from Acorn Business Finance. It’s a smart, convenient and stress-free way to deal with your PII.
You can spread the cost over multiple instalments to protect your cashflow, which allows you to keep your working capital available to drive other parts of your business forward.
If you are in a practicing profession we can also help streamline things further by offering a loan to cover both your practicing certificates and your PII.
Acorn PII Loans information:
- Spread over 6-24 months.
- Fast decision on funding, usually within 24-48 hours.
- 1 to 1, tailored service.
- Quick process with e-signed docs.
- Option to combine PII and Practicing Certificates into one loan.
- Revolving Facility.
Interested in learning more? Book a call with our team or read more about our business loan options.
