Professional indemnity (PI) insurance: a guide for buyers
5 January 2023
Having robust PI insurance in place is vital for businesses. There are a few things to be aware of when you’re looking to take out a policy.
Professional indemnity (PI) insurance covers you in the event of a client incurring losses or damages resulting from negligence in your advice or services. It’s important: lots of professions require PI insurance as part of their industry body’s regulations, and even if you’re not required to have it, you could be liable for costly legal fees and compensation payments if you go without.
Recently, however, some professionals have found it more difficult to find cover. “It’s a challenging market at the moment, and different customers are facing different problems, from not being able to find cover, to big price increases, to a product that might not provide as much protection as it used to,” says Richard Brooks, Broker Development Director at Markel UK. The design and construction sector, for example, has been affected by the Grenfell fire tragedy and subsequent cladding crisis, while few sectors have escaped pandemic business disruption.
In this context, there are a few things buyers should be aware of when looking for PI cover. The first of these is the insurer’s credentials. “It’s important to look at the insurer’s track record, as well as their business model”, says Richard.
“How is this insurer able to offer consistency and sustainability?” Insurers that predominantly deal with longtail liabilities are often more insulated against market volatility, he says, than mainstream insurers. The more stable and sustainable an insurer is, the more likely you are to avoid a “nasty shock”, he adds.
Presentation of risk
It’s also important for buyers to know that, whether at new business application or renewal, they have a duty to ensure fair presentation of risk. The benefit of working with a specialist insurer with broad experience is that it helps avoid misunderstandings as they’ll make it clear how the buyer can ensure they’re presenting the risk accurately, with information such as the requirement to declare a change in activities, new contracts, additional design exposure or covering sub-contractors.
Something else to watch out for is that online declarations and proposal forms tend to vary across categories of PI. However, online systems that are supported by underwriting teams with appropriate referrals will pre-empt the categories of PI that need more bespoke underwriting.
“It’s also important to be aware of coverage and how it’s changing”, says Richard, “whether you’re taking out new cover or renewing.”
Emerging cyber and data risk is a common example of how changes to cover can occur. The impact of this varies by trade. “At Markel, we offer the option to add cyber cover to PI policies, as part of the wider PI combined package,” Richard adds. Fire safety exclusions can also contribute towards changes to cover, which have become common across the construction, property management and safety professions in light of the ongoing cladding crisis.
A final thing to look out for as a PI buyer is whether the insurer offers “any additional services that will either prevent a claim from occurring or limit its magnitude,” says Richard. “If you can keep claims down, that helps to keep the premium down.” One example is the debt recovery service Markel offers for IT, media and communications PI policyholders. “If your invoices for a professional service are going unpaid, the likelihood is that the person isn’t paying because they’re not happy with the advice they’ve received – and that’s an early warning sign that a PI claim could be coming,” explains Richard. “If your PI cover has a service like debt recovery, you can be confident in pursuing the money owed and reaching a resolution with the customer.
“You can therefore think of the debt recovery service and other services, like contract checking, as claims
mitigation tools,” says Richard. “These aspects of cover are underutilised, but they can really help.”