Whichever industry you specialise in, the potential for making a mistake is always there. Unfortunately, we live in a blame culture. Professional indemnity Insurance covers a business for the cost of defending against allegations of professional negligence (such as giving your client incorrect or wrongful advice) and if unsuccessful, the cost of damages awarded against you. But would limit should a business hold?
Indemnity insurance is slightly different to other types of insurance. Whereas with a property or car insurance you are usually given a standard limit of cover (the maximum amount your insurer will pay out), with professional indemnity insurance, you will be given a range of limits to choose from.
So, which limit should you choose? This is one of the most common questions we are asked by our customers and there are a number of ways you can decide.
Check with your client – If you’re undertaking a contract for a specific client, they may well have specified a minimum amount of cover required for you to undertake the contract. If they have, you can simply choose this level of cover when buying your policy in order to meet their requirements. Typically we see most clients are requested to hold minimum limit of indemnity of £1,000,000. If they’ve specified that you need to have professional indemnity insurance but don’t state a limit, it may be worth checking with them how much they would consider acceptable before you buy.
Check with your industry body – If you are a member of an industry body they may require you to hold a minimum level of cover as a condition of membership. Details about minimum cover requirements are usually contained in your membership agreement, but if you’re unsure, speak to your industry body directly to find out.
Below are some example requirement set by industries professional body
The Institute of Chartered Accountants in England & Wales (ICAEW) – The institute of Chartered Accountants is the professional body for accountants in England and wales. The required cover is two and a half times the gross fee income of the firm for its last accounting year (including non-recurring income) subject to a minimum of £100,000 and a maximum of £1.5 million (any one claim and in the aggregate).
Architects Registration Board (ARB)- This ARB is the governing body for architects. They set the guidelines and standards for architects providing professional services in the industry. Below is an outline of guidelines set by the ARB in relation to Architects Professional Indemnity Insurance: For fee income that is less than £100,000 a minimum limit of indemnity of £250,000 must be held.
Royal Institute of Chartered Surveyors (RICS) Professional Indemnity Policy Requirements – RICS recommend the minimum levels of cover. However depending on the activities you undertake, client requests or project sizes it may be prudent to hold a higher Professional Indemnity Limit.
Last year’s turnover Minimum level of cover
£100,000 or less £250,000
£100,001 to £200,000 £500,000
£200,001 or more £1m
Decide for yourself – If you simply want to arrange cover for all work you undertake, the best way to choose your limit of cover is to consider a worst case scenario and how much you think it could cost to put right. For each project you are working on, take into consideration:
- The cost of getting a third party to rectify a serious mistake you’ve made – depending on the type of work you do, this could be very costly in itself. For the construction industry rectification cover is a must, it covers the costs incurred in remediation work or mitigating a loss or potential loss that may otherwise result in a claim. A typical example could be underpinning of foundations.
- Any consequential losses your client would incur as a result of your mistake – for example, delay of a project leading losses or missed business opportunities
- Any damages or compensation due to your client which will usually decided by the courts unless a settlement is agreed
- Any legal fees incurred by your client in pursuing you – these can easily run into hundreds, if not thousands, of pounds
For a start-up business with a relatively low projected income, we would suggest as a minimum no less than £250,000 to begin with – but this depends on the industry you are working in and the type of work you undertake; only you can make this decision. For more established businesses and contractors working with several clients on large contracts, £1m – £5m is a more appropriate limit and may be better suited to their needs.
Need a quote for professional indemnity insurance?
All our account executives have their own specialist fields, from accountancy to surveying and engineering. If you would like to see what options are available, give us a call. Our service includes the following:
- A no-obligation review of your insurances
- Identification of any gaps in cover
- Help you to arrange a policy that meets your needs
- Answer any questions you may have
- Comparison of insurance quotes & cover from multiple insurance companies (we’re independent so not tied to any insurers)
- Availability of instant cover
- If there is a better deal out there, we’ll tell you. You can still transfer your insurance to us and try out our service
- Option of face-to-face, telephone or online communication
- Ongoing one-to-one support throughout the year
- We’ll be here to help if you need to make a claim
We are a Kent based independent insurance broker. We’re happy to offer you advice and answer any questions you may have.
