This content was reviewed in June 2024.
Professional Indemnity insurance is one of many types of cover that is crucial for UK small business service providers. How does the insurance protect your business, what companies might need it and when, and what should be considered to ensure your levels of cover are right?
Our insurance experts from FSB Insurance Service answer your frequently asked questions.
What is Professional Indemnity insurance?
This type of cover protects you against a series of factors concerning the business services you provide to your clients. This includes:
- Legal costs and expenses incurred during a claim
- Damages or compensation costs that might be awarded if you’re alleged to have given inadequate advice
- Services or produced work that has caused your client to lose money
When might you need this cover?
Depending on your business, there are many times when you might need Professional Indemnity insurance. Some examples include situations involving:
Error – such as including factually incorrect information in a project you’ve done for a client
Negligence – such as client work you’ve carried out that hasn’t met the specified requirements, causing them to lose money or suffer an injury
Infringement – for example, an accusation is made that you’ve infringed a competitor’s copyright
Breaching confidentiality – for instance, an employee sending out an email to a supplier that contains confidential client information
What types of companies need Professional Indemnity insurance?
If you’re a small business that provides a professional service or gives advice, which can cause your clients to lose money or suffer an injury, then you should consider purchasing this insurance. The cover can also be essential for companies that handle client data and are responsible for intellectual property.
It’s important to mention that, depending on your services, the insurance might be a condition of a contract that you form with a client. It might also be a requirement of an industry association’s regulations, of which you’re a member, so it’s wise to check with them.
Examples of businesses that should have this cover are:
- Marketing companies
- Architecture firms
- Interior and graphic designers
- Health consulting firms
- Financial advisors.
Other companies include recruitment, management, and business consultants, IT contractors, like programmers and web developers, fitness professionals, such as personal trainers and dance teachers, as well as private tutors.
Without insurance, businesses like these can be liable for thousands of pounds of legal fees and compensation payments if a client makes a claim against them.
What level of cover do you need for your business?
If your business is a member of an industry association, having Professional Indemnity insurance might be a requirement for your company. In this case, the minimum level of cover you need will probably be decided for you. Otherwise, it’s important to remember that every business is different, so, when it comes to this insurance, there isn’t a one-size-fits-all solution.
To work out the cover you might need, you should consider the size of your clients and the size of the contracts you have with them. You should also think about the potential total costs you’d need to make to defend yourself if a claim was made against you. It’s a good idea to also consider any compensation you might have to pay, based on multiples of the fees your clients pay for your services.
Is your business protected?
Professional Indemnity is one of many types of insurance that can be essential when running a business. From deciding what type of policy to purchase and what it should cover to knowing which provider is best for you, there’s a lot to consider when choosing the right insurance for your business.
FSB Insurance Service Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 788654 ) Registered Office: 20 Fenchurch Street, London, United Kingdom, EC3M 3AZ. Company Number: 10831430