Professional indemnity insurance (or PII) is a policy that is available to providers of professional services. Professions that come to mind include solicitors, accountants and architects as well as those in the IT and other industries.
It may be that you are required by a professional body to take out a certain level of cover. And you may find in day to day business that some large organisations will not deal with you unless they have seen evidence that you have adequate PII cover. This is particularly true if you are trying to win business from public sector bodies.
What does professional indemnity cover involve?
These policies typically offer an indemnity for claims made by your clients for loss they have suffered due to negligence that has occurred in your work. So, for example, if you have made a mistake in the design of a building and it collapses, the client could sue you for the loss he has suffered as a result. Claims can be made for negligence due to your acts (like the wrong design); omissions (like an accountant filing a tax form late); libel and slander.
What don't the policies cover?
Professional indemnity insurance deals with a specific set of circumstances in a negligence scenario. It does not cover claims from customers for personal injuries sustained on your premises, or the work-related illnesses of your employees, for example. If you do not already have cover for these risks, you may wish to consult with your insurance provider about further policies.
How are the premiums worked out?
Premiums are usually based on the value of the transactions and projects that you work on. So, going back to the architect's example, if you design shopping centres for a living, you may need more cover than someone who designs individual residential houses, as the sums involved are larger. As with other insurances, providers assess the risks of providing your cover when deciding how much you should be charged. So a firm with an unblemished record may pay less for their cover than a firm who regularly claim on their insurance.
What else should you look for?
Look for the level of the excess on the professional indemnity insurance policy. The excess is a portion of the claim that will not be met by the insurer and that you, the insured, need to pay before receiving settlement from the insurer. Consider your claims history and the value of the projects you work on to decide what would be a suitable excess for you. Also, check the terms and conditions fully.