What is Professional Indemnity Insurance?

When professional indemnity insurance is commonly relevant

Professional indemnity insurance is typically discussed by individuals and organisations that provide professional services or advice for a fee. This may include consultants, legal and financial professionals, engineers, architects, IT specialists and other service-based businesses.

The relevance of cover depends on the nature of the work undertaken, contractual obligations, regulatory requirements and exposure to client claims.

How professional indemnity insurance generally operates

Where a client makes a claim alleging financial loss arising from professional services, a professional indemnity policy may respond in line with its terms and conditions. Policies are usually written on a claims-made basis, meaning the policy in force at the time the claim is made is generally the one that responds, subject to any retroactive cover provisions.

Support provided under the policy may include assistance with legal defence costs and, where applicable, compensation awards or settlements.

What professional indemnity insurance is typically intended to cover

Subject to policy wording and exclusions, professional indemnity insurance is generally intended to address claims relating to:

• Alleged professional negligence
• Errors or omissions in advice or services
• Breach of professional duty
• Financial loss suffered by a client

Cover does not apply to all situations, and policy exclusions will vary.

Common exclusions and limitations

Professional indemnity policies usually include exclusions. These may include, but are not limited to:

• Fraud or deliberate wrongdoing
• Criminal acts
• Certain contractual liabilities
• Claims arising outside the agreed scope of professional services

It is important to review the policy wording carefully to understand the scope of cover and any limitations.

Professional indemnity insurance and public liability insurance

Professional indemnity insurance and public liability insurance address different types of risk.

Professional indemnity insurance relates to financial loss arising from professional services or advice, while public liability insurance typically relates to claims for injury or property damage caused by business activities. In some cases, businesses may hold both types of cover, depending on their activities.

Regulatory and contractual considerations

In some professions, professional indemnity insurance is required by regulators or professional bodies. In other cases, it may be a contractual requirement imposed by clients or commercial partners.

Whether professional indemnity insurance is mandatory depends on the profession, sector and working arrangements involved.

Cost and policy considerations

The cost of professional indemnity insurance varies depending on factors such as the nature of the services provided, business size, claims history, contractual exposure and the level of cover required.

Higher-risk professions or activities are typically associated with higher premiums. Policies may be arranged with varying limits of indemnity to reflect different levels of risk exposure.

How cover applies to past work

Many professional indemnity policies include retroactive cover, allowing claims made during the policy period to be considered even if the work was carried out in the past. This is subject to the retroactive date specified in the policy.

If cover lapses or a business ceases trading, additional arrangements such as run-off cover may be required to address future claims relating to past work.

This information is provided for general guidance only and does not constitute insurance advice. Insurance requirements vary depending on individual circumstances, policy terms and insurer conditions.

Frequently Asked Questions

Is professional indemnity insurance mandatory?

Professional indemnity insurance is mandatory for certain regulated professions, while for others it may be a contractual or commercial requirement rather than a legal one.

Does professional indemnity insurance cover all mistakes?

No. Policies are subject to exclusions and limitations. Deliberate acts, fraud and criminal activity are typically excluded, along with claims outside the agreed scope of professional services.

Is professional indemnity insurance the same as errors and omissions insurance?

The terms are closely related and are sometimes used interchangeably. The scope of cover depends on the policy wording and the activities insured.

Does professional indemnity insurance cover past work?

Many policies include retroactive cover, allowing claims made during the policy period to relate to work completed in the past, subject to policy terms.

Can professional indemnity insurance be transferred if I change provider?

Cover can usually be transferred when changing insurer, but it is important to ensure continuity of cover and that retroactive dates are maintained to avoid gaps.

What happens if I do not have professional indemnity insurance?

Without appropriate cover, a business or individual may be personally responsible for legal costs and compensation arising from client claims, subject to regulatory or contractual consequences.