60 Sec Professional Indemnity Guide

Do you have clients who are professionals using their knowledge, skills or advice as part of their daily work?

Then you need to recommend professional indemnity cover from an expert professional risks insurance broker – Kerry London Underwriting Agency (part of Kerry London Limited). From accountants and solicitors to dieticians and marketing experts – any professional who offers their knowledge, skills or advice as part of their work needs to purchase PI cover.

Today, businesses have a growing need for professional indemnity insurance. They may need it because they can’t secure a contract without proof of cover, or they may understand how important it is to protect their business. Either way it is an excellent opportunity for a broker, but it can feel like a challenge to get to grips with.

Our sixty second guide to professional indemnity looks at who needs it, what the different coverages are, and how to select the right one.

1. There is more than one type of Professional Indemnity cover on offer

Some policies are written on a “negligence” basis, starting with a defined peril, and then extending cover beyond that. Others are written on a “civil liability” basis, starting with broad cover and then excluding certain perils.
Don’t just assume that civil liability wordings offer broader cover; you need to check through the exclusions that the policy contains. Only by looking at the indemnity given and checking the exclusions can you have a proper idea of what cover is actually being provided.

2. What limit should you recommend to a customer?

Some professional bodies or affinity groups will stipulate or recommend a limit that the Insured should have. Make sure you check that out. In addition, you need to look at the answers to the proposal questions; what’s the largest contract they have, the types of contract they sign, how they work to limit their liability if possible. Try to get the insured to think about the worst case scenario, and who they are undertaking contracts with. Finally remember to consider legal costs – they can be significant.

3. Is it better to go for an aggregate or any one claim basis?

Most policies are written on an “any one claim” basis – meaning each claim takes advantage of the full limit of indemnity. However, you can also buy policies written on an “aggregate” basis – where the limit of indemnity applies across all claims in total during the policy term, so each claim will eat into the annual aggregate limit.
So a insured that undertakes multiple high-value contracts, and have the potential for more than one claim in a year, an “any one claim basis” may be best but a insured who charges low fees and does not consider a claim to be likely, might opt for an aggregate basis. Aggregate policies are usually cheaper.

4. Don’t forget run-off

Professional Indemnity policies are written on a “claims made” basis, meaning they only cover claims notified during the policy period. This is the reverse of Employers’ and Public Liability, which are written on a “claims occurring” basis, where the insurer at the time of the incident provides cover, irrespective of when the claim is made.
As claims can come in years after work is completed, even if your insured has ceased trading or retired, you should be advising them to purchase “run-off” cover.
You should advise adding a cut-off date to their current PI policy, so it only covers claims made while the business was still trading.
How long should run off cover be bought for?
This varies depending on the insured’s line of work. Six years is usually considered the minimum but if any contracts were executed as deeds, which is becomingly increasingly common in the building industry for example, then this may be as much as 12 or 15 years.

5. Tailoring solutions

Professional Indemnity is pretty straightforward from a policy wording point of view the key to getting the cover right for the individual insured is a proper understanding of the risks involved in the insured’s business activities. You need to really know your Insured to ensure that the wording and limits are appropriate to their needs. Encourage a mature and thoughtful approach to the proposal form. This is a key document and time should be taken to make sure that the answers make sense, and reflect the insured’s business both past and present. Get as much additional information about the personnel, their roles, contracts they have signed, terms of business they work by etc. Sending in a sloppy proposal gives the insurer the impression that the insured is sloppy about their business – just the last thing you want them to think!

Read our in-depth PI guide or learn more about our PI product.

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