Professional Indemnity Insurance For Small Business

Professional Indemnity Insurance For Small Business

As an entrepreneur, you want to protect your business in every possible way. Professional indemnity insurance for small business, also known as PI insurance, covers you in the event that a customer claims that your service, advice, or design does not meet expectations, or has resulted in a financial loss to the customer. It covers legal fees and other costs incurred by your defense, as well as any damages or costs that may be awarded to your client.

Do I Need Professional Indemnity Insurance For Small Business?

Many professions are required to purchase professional indemnity insurance as part of the legal requirements of their respective industry associations. Even if you’re not required to have PI insurance, without it you could be liable for thousands of pounds in legal fees and compensation payments, not to mention lost income from time spent defending an accusation. You may need professional indemnity insurance if:

  • Provides professional advice or services to your clients (including advice or recruitment)
  • Deliver designs to your clients (such as working as an architect or design engineer)
  • You want to protect yourself from accusations of errors or negligence in the work you have done for your client
  • You work as a contractor, consultant, freelancer, or self-employed person and your client has requested you to take out professional liability insurance to carry out an assignment
  • Your industry association/regulatory body requires you to have it

Occupations that may require professional indemnity insurance include (but are not limited to):

  • Management and business consultants, such as marketing consultants, training consultants, and education consultants
  • IT professionals, including IT contractors, consultants, programmers, and developers
  • Engineering and technical contractors, including CAD designers, project engineers, and offshore oil and gas engineers
  • Recruitment agencies and recruitment consultants.
  • Designers such as web designers, graphic designers, and interior designers.
  • Fitness professionals, including personal trainers, dance teachers, and yoga instructors.
  • Teachers and tutors, including private tutors.

What Does Professional Indemnity Insurance For Small Business Not Cover?

While PI insurance covers quite a few circumstances, there are also some scenarios where you may not be covered.

Please refer to your policy terms and conditions for full details, but IP insurance generally does not cover:

  • Fines and penalties
  • Any loss to your business caused by mold, pollution, or asbestos
  • injury to an employee
  • Injury or loss in a joint venture (only your products/services are covered by your insurance, not a partner’s products or services)
  • Circumstances that existed before your coverage began.
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What is an example of a PI insurance claim?

Your client commissioned a graphic designer to create price tags that would fit around the trunk of Christmas trees. The tags should withstand exposure to the elements and stay tight against the tree as it grew. The labels have not stood the test of time; the ink ran, rendering them unusable for the customer. The client lost money as a result of this inattention and took legal action against the graphic designer for professional negligence. The graphic designer’s professional indemnity insurance covered legal costs and client damages, with a total cost of over £3,000. The customer has not claimed the full cost of the labels; if they had, the claim could have cost up to £100,000.

What Does Professional Indemnity Insurance For Small Business Cost?

Costs vary depending on several factors, including the amount of cover, but Markel Direct offers PI insurance cover from £8 per month (or £78 per year) for a wide range of professionals. Still, confused by professional liability insurance? Call an expert today. They are professional reimbursement experts and are happy to help you with all your questions.

You will find that a few factors make a big difference in how much you pay for error and omission coverage. Those factors include:

  • Cover amount. Most insurance customers opt for a policy with a $1 million per event limit and a $1 million aggregate limit. The per-event limit is the maximum your insurer will pay for a single claim. The total limit is the maximum your insurer will pay during the policy period, usually one year.
  • Policy deductible. The lower your deductible, the higher your premium.
  • coverage from the past. Earlier professional liability claims often lead to a higher premium.
  • Type of company. Some companies, such as IT consultants and project managers, have a higher risk of a professional liability claim, which can lead to higher premiums.
  • Company size. Larger companies will often need more coverage, increasing their annual costs.
  • Cyber ​​risks. Companies that process sensitive customer or customer data are at higher risk and often pay more for insurance.

How Do You Invoke Professional Indemnity Insurance For Small Business?

Knowing how and when to claim professional indemnity insurance for small business can be tricky. In general, you should notify your insurer when a customer makes a complaint that cannot be easily remedied or remedied. In some cases, a refund or change of service is required. However, if the customer is still not satisfied, your coverage may respond.

To make a claim, you must first contact your broker or insurer directly. If you need guidance, she is your best point of contact and can advise you on how to resolve the issue informally or tell you about your next steps. Also, read your policy schedule again to make sure you are covered.

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Here you can fill out a claim form that will give your insurer all the information they need to file your claim. They may need proof or proof, such as emails between you and the customer, to show what the problem is and why you are claiming your PI insurance.

Once the form is completed, your insurance company will keep you informed every step of the way, informing you of updates and information about your claim.

Professional Liability Insurance Jargon

If you’re confused about the terminology associated with professional indemnity insurance, we’ve explained some of the jargon below.

What is the difference between an ‘any claim’ policy and an ‘add-on’ policy?

‘Any damage’ and ‘total’ refer to the basic coverage of a professional indemnity policy.

An ‘only loss’ policy provides cover-up to the full limit for any claim made in the insurance period, while an ‘aggregate’ policy provides cover-up to the full limit for all claims made in the insurance period.

To put this in context, if two £75,000 claims are made against a £100,000 professional indemnity policy, the insurer would cover the cost of both claims as they are both below the £100,000 limit.

If two £75,000 claims are made against a total professional indemnity policy of £100,000, the insurer will pay only up to the limit of £100,000. As the claims total £150,000, the remaining £50,000 will need to be covered by other means.

While any claim is generally considered the most comprehensive option, the base of coverage varies from insurer to insurer, depending on the company.

What does ‘claims’ mean?

A claims-made policy provides cover for claims made and reported to the insurer during the insurance period.

This means that as long as the tort occurs during the insurance period and you report it to the insurer during the insurance period, you are covered. However, if the policy is canceled or not renewed, coverage will end and any subsequent claims, regardless of when the tort occurred, will not be covered by that policy. As such, it is important to have professional liability insurance, even between contracts or jobs, to ensure your business is protected. All professional indemnity insurance policies from Markel Direct are based on ‘claims made’.

This is in contrast to a ‘casual events’ policy which provides cover for claims that occur during the insurance period. Professional indemnity policies are rarely prepared on this basis. It is most commonly found in public liability and employer liability policies.

What is a ‘run-out cover’?

Liquidation coverage insures professional negligence claims are filed against you after your business ceases operations. This could be, for example, if you have sold or closed your business. Retired entrepreneurs should consider; without cover from the drain, they would have to fund the defense of the claim out of their back pockets.

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Technology Companies Need Specialized Coverage

Traditional professional indemnity insurance does not cover the cyber liability risks faced by nearly all technology companies. Many IT companies take out technology error and omission insurance (technology E&D) to insure this coverage.

Tech E&O combines professional liability insurance with cyber liability insurance. This policy pays for legal fees and other recovery costs if a data breach or cyber attack affects your business or your customers.

A technology E&O policy comes with two types of cyber liability coverage:

  • First-party cyber liability insurance covers you if there is a data breach on your system.
  • Cyber ​​liability insurance protects you when there is a data breach on a customer’s system you have worked on.

What Does Professional Indemnity Insurance For Small Business Reimburse?

If a client sues you for errors or omissions in your work, professional liability insurance can cover all of your legal costs, including:

  • Attorney’s fees
  • Court fees
  • Settlements
  • Sentences
  • Fines

Coverage for technology errors and omissions also covers costs associated with a data breach, including:

  • Informing customers about the data breach
  • Credit and Fraud Monitoring for Affected Customers
  • Investigation into the origin of the infringement
  • Public relations and reputation management.
  • Ransom demands from a cybercriminal holding data hostage
  • Costs related to investigations by regulators

Why Do You Need Professional Indemnity Insurance For Small Businesses?

If your business provides services or makes a living from providing professional advice to others, you should consider professional liability insurance.

While not a legal requirement, many clients or owners will want you to have liability insurance before signing a contract with you.

Both large and small businesses face the same risk, as it only takes one mistake by you or an employee to put your entire business at risk. Even if you’re not at fault for a customer’s financial loss, defending against such claims can cost your business an incredible amount of time and money.

You’re even at risk for years after working with a customer if you recommend a product that fails or has a data breach, revealing the customer’s (or their customers’) personal information.

Because professional indemnity insurance is a damage policy, you must keep this policy active once you purchase it. You are only protected if your policy is active both at the time of the incident and at the time a claim is made. You can set a retroactive date for your previous work.

Finding the Right Professional Liability Cover for Your Business

Before deciding on a policy, some questions to consider are:

  • Do the services you provide put you at greater risk of a lawsuit?
  • How big is your business and who should be covered: just business owners and their W-2 employees, or should you include your 1099 subcontractors as well?
  • What is your budget and what combination of policy limits and deductible is a good mix?

Buy Professional Indemnity Insurance For Small Business

You can take out professional indemnity insurance for small business directly from an insurer or specialist intermediary through the British Insurance Brokers Association (BIBA). How much coverage you need and the price of your premium depends on your occupancy.

Some professional and regulatory bodies insist that their members be insured for a minimum amount. For example, lawyers must have professional indemnity cover between £2 million and £3 million for any claim made against them.

If you are not a member of a professional body, you can ask your clients how much coverage they expect from you.