Professional Indemnity Insurance: Common Myths Explained

In professional services, risk does not only arise from major mistakes. Even careful, competent businesses can face allegations of error, omission or negligence.
Professional Indemnity (PI) insurance is designed to respond to claims arising from the provision of professional services. Despite this, misconceptions about who needs PI insurance and how it works remain common.

Below we clarify several of the most frequent misunderstandings.

Myth 1: "If I do good work, I won't face a claim"

Delivering high-quality work reduces risk, but it does not remove it.

Claims can arise from misunderstandings, disputed outcomes, evolving standards, or allegations of error. In some cases, a business may need to defend itself even where it has acted competently and reasonably.

PI insurance not only covers potential compensation but typically also covers legal defence costs, which can be substantial even if no wrongdoing is ultimately established.

Reality: Even well-managed businesses or highly experienced professionals may need to defend a claim.

Myth 2: "I've never had a claim, so I don't need PI"

Past experience does not determine future exposure.

Professional Indemnity insurance generally operates on a claims-made basis. This means the policy responds when a claim is made and notified during the period of insurance, not when the work was performed.

A claim may be brought years after services were delivered. If cover is not in place at the time the claim is made, there may be no protection.

For professionals who retire or close their business, maintaining appropriate run-off cover is often essential to protect against future allegations relating to past work.

Reality: Continuous cover matters. Claims can arise long after the work is completed.

Myth 3: "I don't give advice, so PI doesn't apply to me"

Professional Indemnity insurance is not limited to traditional advisory roles.

Any business or professional that provides services where a client relies on its specialised knowledge, skill or judgement may face exposure. This includes consultants, designers, IT providers, project managers, healthcare practitioners, engineers and many other service-based professions.

In many industries, holding Professional Indemnity cover is a condition of registration, licensing or membership of a professional body. In others, it may be contractually required by clients and even employers.

Reality: If clients rely on your professional expertise, PI insurance should be carefully considered.

Myth 4: "My contract protects me"

Well-drafted service agreements are important. However, they do not prevent a client or third party from making a claim.

Contractual limitations may be tested or challenged, and defending a claim can involve significant legal costs regardless of the outcome. Many contracts require PI insurance precisely because contractual protections alone are not sufficient.

Reality: Contracts manage risk. Insurance funds the response if a claim arises.

Myth 5: "Public Liability Insurance is enough"

Public Liability insurance covers claims for bodily injury or property damage to third parties. It does not respond to financial loss arising from professional advice, design, specification, recommendation or service delivery.

Professional Indemnity insurance fills this gap.

Reality: Public Liability and Professional Indemnity serve different purposes and are not interchangeable.

[Further reading: Understanding Liability Insurance]

Myth 6: "PI insurance is too expensive"

Premiums are calculated based on the nature of the services provided, revenue, claims history and selected limits.

While PI insurance is an ongoing business or employee expense, the cost of defending even a modest claim can significantly exceed annual premiums. Many policies also provide access to legal support at an early stage, which can assist in resolving matters before they escalate.

A qualified broker can review your needs and request pricing from a range of insurers to get you great value cover you can rely on.

Reality: PI insurance can help secure your financial future by protecting against potentially significant legal and financial exposure. A qualified broker can help ensure you aren't paying more than you need too.

[Further reading: Choosing the Right Insurance Broker for Your Business]

Why Professional Indemnity matters

Professional Indemnity insurance is not about expecting or accepting mistakes. It reflects the reality that allegations can arise in any profession, and that responding to them often requires legal defence, time and cost, even if the claim is unfounded. Appropriate cover helps to ensure those costs do not fall personally on you or your business.

How Coverforce can help

Professional Indemnity requirements vary depending on your profession, contractual obligations and risk profile. A Coverforce broker can review your services and arrange great value cover tailored to your needs.

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