20th October 2017
How PI cover helps small business owners get a good night’s sleep

What gives SME owners nightmares? Apparently, three quarters of them worry about making errors when working on client projects, half of them are concerned that they might give bad advice, and a quarter of them worry that they might get a substantial claim made against them for some aspect of their work.

A recent survey has shown that just four in ten businesses put insurance in place during their first three years of operation, many don’t insure in the mistaken belief that they are under the radar when it comes to claims. Sadly, this isn’t the case: with the UK increasingly becoming a compensation culture, no business of any size is immune from risk. Having to spend time dealing with a claim for loss or damage can be a major drain on the often-stretched resources of smaller enterprises, in some instances posing a threat to their continued existence. Whilst some claims are for comparatively small amounts, they can sometimes amount to many millions.

This is where professional indemnity insurance (PI) has a major role to play. The traditional definition of a ‘professional’ covered occupations like accountant, solicitor, lawyer and architects. However, today the scope is much wider, and can include anyone who offers specialist advice or services to their clients.

The new professionals

Whilst most established professions require practitioners to have some form of professional indemnity, there are many newer trades which aren’t obliged to have this insurance cover in place, but would benefit greatly from it if they found themselves faced with dealing with litigation, paying for legal fees or making substantial compensation payments in response to a claim. Over 500 different occupations now regularly purchase PI cover in the UK, with many coming from newer emerging trades in areas like construction, science and technology.

If a business provides advice or consultancy delivered by experts, produces designs, plans or calculations, or handles personal information, then it needs to think about the financial risk it would face in the event of a claim being made against it. Not surprisingly, clients are increasingly stipulating that PI cover is in place as a condition of doing business.

Major risks covered

PI insurance is designed to protect people and firms if they have financial claims brought against them for errors made in the course of their work. It protects people against professional negligence, errors or omissions, breaches of professional duty or conduct, and civil liabilities. Policies typically offer indemnity up to £5m and cover financial loss and legal costs.

Cover typically includes:

  • Negligent acts, errors or omissions,
  • Breach of statutory regulation relating to a profession or building construction work
  • Financial loss arising from dishonest or fraudulent acts by employees
  • Libel, slander and/or defamation
  • Loss of documents or data
  • Unintentional breaches of confidentiality or intellectual property rights
  • Cover against a breach of data protection or the Construction Design and Management Regulations

Market potential

The UK PI market is estimated to be worth around £1.8 billion in annual premiums. The recent rise in the number of self-employed and new start-ups has led to a correspondingly marked rise in the numbers of policies sold annually, and there are now over 1.4 million policyholders nationwide. Around 80 per cent of the business is placed via brokers.

The main types of work that give rise to PI claims are in areas like conveyancing, taxation, investment advice, surveying, valuations, design and construction.

Where to get further information

If you have any queries, or would like to know more about professional indemnity insurance, then please contact us on 0345 345 0777.