What Is Professional Indemnity Insurance?
Professional indemnity insurance is a type of business insurance that can protect you if a client claims your professional advice, services or work has caused them financial loss.
Professional indemnity insurance can help protect your business against the cost of these claims.
What does professional indemnity insurance mean?
Professional indemnity insurance, often shortened to PI insurance, is a type of business insurance for people and companies that provide advice, designs or professional services.
It can help cover legal costs and compensation payments if a client claims they suffered a financial loss because of:
- A professional mistake
- Incorrect or incomplete advice
- Negligent work
- An error or omission
- A service that did not meet the agreed standard
A claim does not always have to be successful for it to become expensive. You may still need legal support to respond to an allegation and defend your business.
An example of a professional indemnity claim
Imagine a marketing consultant creates a campaign using incorrect figures. The client spends money based on that information and claims the campaign caused them a financial loss.
Another example could be a designer who makes an error in a document that then needs to be reprinted. The client may ask the designer to cover the cost.
If the work and circumstances are covered by the policy, professional indemnity insurance could help with the cost of defending or settling the claim.
What can professional indemnity insurance cover?
The exact cover will depend on the policy, but professional indemnity insurance may include:
Professional negligence
This is when a client claims you failed to provide the level of care or skill expected from someone in your profession.
Errors and omissions
A small mistake or a missing piece of information could have a large financial effect on a client. PI insurance may cover claims linked to these errors.
Legal defence costs
The policy may help pay for legal advice, court costs and other expenses involved in defending a covered claim.
Compensation payments
If a claim is successful, the policy may cover compensation or an agreed settlement, up to the limit shown in your policy.
Other professional risks
Depending on the policy, cover may also be available for claims involving lost documents, breach of confidentiality, defamation or intellectual property rights.
Not every policy includes these features, so it is important to check the policy wording carefully.
Who may need professional indemnity insurance?
You should consider professional indemnity insurance if your business provides advice, designs, knowledge or specialist services.
This may include:
- Consultants and business advisers
- Accountants and bookkeepers
- Architects, engineers and surveyors
- IT consultants and software developers
- Marketing agencies and creative professionals
- Designers, copywriters and photographers
- Recruitment consultants
- Contractors and other self-employed professionals
You do not need to run a large company to face a professional indemnity claim. Sole traders, freelancers and small businesses can also be held responsible for mistakes in their work.
Some clients may ask for proof of professional indemnity insurance before they agree to work with you. It may also be a condition of a contract or tender.
Is professional indemnity insurance a legal requirement?
Professional indemnity insurance is not a general legal requirement for most UK businesses. However, certain regulators and professional bodies require their members or firms to have it.
This can apply to some businesses working in areas such as law, accountancy, financial services, architecture and surveying.
Always check the rules for your profession and any insurance requirements written into your client contracts.
Professional indemnity vs public liability insurance
These types of insurance protect against different risks.
Professional indemnity insurance covers claims linked to professional advice, services or work that allegedly caused a client financial loss.
Public liability insurance usually covers claims involving injury to a member of the public or damage to their property because of your business activities.
For example, PI insurance may help if a client loses money after following incorrect advice. Public liability insurance may help if a client trips over equipment in your office and is injured.
Depending on what your business does, you may need both types of cover.
How much professional indemnity cover do you need?
There is no single level of cover that suits every business. When choosing your limit of indemnity, consider:
- Any minimum set by your regulator or professional body
- The amount required by your client contracts
- The size and value of the projects you work on
- The largest financial loss a mistake could cause
- The possible cost of defending a claim
- Whether the limit applies to each claim or all claims made during the policy period
You should also check the policy excess. This is the amount your business may need to pay towards a claim.
An insurance broker can help you consider the risks connected to your work and explain the cover options available.
How much does professional indemnity insurance cost?
The price of professional indemnity insurance depends on several factors, including:
- The type of services you provide
- Your annual income or turnover
- The size of your contracts
- Your previous claims history
- The level of cover you choose
- Your policy excess
- The risks linked to your profession
A business providing high-value financial advice may face different risks from a freelance graphic designer, so their premiums are unlikely to be the same.
What does professional indemnity insurance not cover?
Exclusions vary between policies, but professional indemnity insurance will not normally cover every business risk.
It may not cover:
- Deliberate, dishonest or criminal acts
- Problems you knew about before taking out the policy
- Employee injuries or work-related illness
- General injuries to members of the public
- Damage to third-party property
- Claims above the policy’s cover limit
- Cyber incidents that require separate cyber insurance
Always read the terms, conditions and exclusions before buying cover.
What does “claims made” mean?
Professional indemnity insurance is usually provided on a “claims made” basis. This generally means the policy must be active when the claim is made, not only when the original work was completed.
For example, a client could make a claim in 2027 about advice you gave in 2025. Your current policy and its retroactive date will help determine whether the claim can be covered.
Keeping continuous cover can therefore be important. Businesses that stop trading may also need run-off cover for claims made later about previous work.
If you receive a complaint or become aware of something that could lead to a claim, contact your insurance broker as soon as possible. Waiting too long could affect your cover.
Is professional indemnity insurance worth considering?
If clients rely on your advice, expertise or services, a professional indemnity claim could place pressure on your finances and reputation. Suitable cover can help you respond to a claim while continuing to run your business.
At One Call Insurance, our Commercial team can help you explore professional indemnity insurance based on the work you do. If you would like to understand your options, get in touch with us for a conversation about your business and its cover needs.
Cover, limits, exclusions and terms will vary between policies.
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