Professional indemnity insurance - protect your business from a costly mistake

An IT consultant works with a client to develop and implement a new IT system. Unfortunately, the system goes down for a long period and the client loses money. Unhappy, the client blames their consultant for the IT downtime. Fighting the claim and paying any compensation could cost the consultant thousands of pounds.

Take another occupation: what would happen if an accountant makes a mistake on filing a client's tax return, leading to a fine from HMRC? Or an architect's drawings are found to be inaccurate after the start of a construction project?

consultant giving advice to clients

What is professional indemnity insurance?

In recent years, there has been a significant increase in the number of negligence claims made against professionals, with clients alleging poor advice or service has led to them losing money. In many instances these claims may have been genuine, but a more challenging business environment has also led to some businesses alleging poor service simply to try and escape from paying a contractor or consultant.

In situations like this, professional indemnity insurance (or PI), will prove invaluable. PI insurance covers freelance and self-employed professionals against allegations of negligence - making a mistake - by their clients.

If you provide advice or work in an area where your actions could lead to a client losing money, whether you work in occupations as diverse as IT or telecommunications, through to engineering or finance, then PI cover should be an essential purchase - as important as public and employers' liability insurance for example.   

Stamp of professional approval

In some instances, it might be that your professional body stipulates a level of PI cover - such as the Solicitors Regulatory Authority, or the Royal Institute of Chartered Surveyors. Many businesses also insist on a contractual demand that their supplier has appropriate PI insurance if something goes wrong.


What does professional indemnity insurance cover?

In simple terms, a PI policy will cover your legal costs and expenses if a client decides to make a claim against you, related to a problem arising from the advice or services you have provided.

In addition, PI will cover:

  • Breach of duty - where you're accused of breaching your duty of care
  • Breach of confidence - you've inadvertently given out confidential client information to a third party
  • Run-off cover - you can still be held liable for work you may have carried out in the past, even after you have stopped providing services
  • Defamation - cover for slanderous or libellous claims.

Protect your reputation

The benefits to your business of PI include the reassurance that, if something does go wrong, you will have the financial support to resolve the issue and prevent potentially ruinous damages to your business. In some instances, a good PI policy and the professional advice and support provided by your insurer can smooth a troubled relationship with a client and help to preserve your reputation.

PI insurance will also save you the time you might spend defending a claim, so you can get on with the day-to-day work your business demands.

PI insurance for freelance professionals is a cost-effective safety net for your business. For further information on the issues covered by this article, please contact Aon on 0333 363 8461.

Whilst care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it.  In any case any recipient shall be entirely responsible for the use to which it puts this article.
This article has been compiled using information available to us up to 13-06-2019.

Meet the author

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Aon plc is a global professional services firm headquartered in London that provides risk, retirement and health consulting.