Self-employed Professional Indemnity insurance guide

Professional Indemnity insurance is there to protect you and your business if a client of yours suffers financial loss as a result of work you have completed for them.

In this guide to self-employed Professional Indemnity insurance we will explain who this type of cover protects and why it is so important.

What is self-employed Professional Indemnity insurance?

Professional Indemnity insurance (PI) – sometimes called Professional Liability insurance – is a type of business insurance that will cover the costs of your legal defence, and any appropriate costs of correcting a mistake, if a client you have done work for takes legal action against you for a financial loss due to an alleged mistake or negligence on your part.

While Professional Indemnity insurance is not a legal requirement, it is often a mandatory requirement for members of professional bodies and can be required by some regulators.

It is common for PI to be stipulated as a requirement for contracts and proof must be provided that adequate cover is in place before the work will be awarded.

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What’s the difference between Professional Indemnity and Public Liability insurance?

Professional indemnity insurance (PI) and Public Liability (PL) insurance are different types of business insurance that cover compensation claims.

Professional Indemnity insurance will provide cover for claims made by clients for alleged professional negligence or mistakes. Public Liability insurance offers cover for claims made by members of the public for injury or damage allegedly caused by you, either to their person or to their property.


Do you need Professional Indemnity insurance if you’re self-employed?

Not every self-employed person needs to carry Professional Indemnity insurance. If you are self-employed and own a café or a shop, then it is likely that you will not need it.

Professional Indemnity insurance is widely regarded as an essential type of cover for professionals offering services, advice and/or designs to their clients. If you offer any of these three types of service to your clients, then it is important to consider PI insurance.

 


Who needs Professional Indemnity insurance?

Professionals who will require Professional Indemnity insurance include: accountants, business advisers, architects, property professionals, graphic designers and marketers, and business services providers who handle and/or process data.

Some professions require their own type of Professional Indemnity cover. These can include those in the legal sector such as solicitors and barristers.

While those working in medical professions typically require Medical Indemnity insurance, which provides a higher level of indemnity cover than a Professional Indemnity insurance policy.

How do you see IPSE supporting your business in the future? And are there any specific benefits that have helped you?

"Hopefully through the experience and advice that IPSE and other members can share with me. Also, I got a much better quote from Markel than from the other insurance companies I looked at. So financially, that’s saved me some money as well."

- Lucinda, IPSE Member


Examples of self-employed professionals and why they might need Professional Indemnity insurance includes:

Nurses

According to the Nursing and Midwifery Council, as a nurse in the UK you must have an indemnity arrangement in place that provides appropriate cover for the relevant risks you practise as a nurse, midwife or nursing associate. Cover does not need to be individually held by you as a nurse, but you will still be required to self-declare that you have the necessary cover in place – held by you or your employer or agency – when you revalidate.

If you are found not to be carrying the necessary arrangement you will be removed from the register and will no longer be able to practise as a nurse, midwife or nursing associate.(1)

Social Workers

Social workers provide a service that comes with responsibility and an expectation of professionalism and specialist knowledge. If something goes wrong a social worker may be held to account for any financial losses with legal action. Professional Indemnity insurance is designed to mitigate the effects of such actions and protect the social worker by covering the costs of defending the claim against them.

Support Workers and Carers

As a domiciliary care worker you have a great responsibility to look after the wellbeing of those you are caring for. As such, you will be expected to carry business insurance that covers Public Liability, Professional Indemnity and, depending on your role within the organisation, it is likely that you’ll need Medical Malpractice insurance.

The Care Quality Commission’s (CQC) guidance states in section 13(1)(a)

“The provider must have insurance and suitable indemnity arrangements to cover potential liabilities arising from death, injury, or other causes, loss or damage to property, and other financial risks.”(2)

Accountants

Working in the UK financial sector comes with unique responsibilities, regulations and risks which require accountants and finance consultants to carry comprehensive business insurance. Accountancy carries with it a huge responsibility, and if you were to advise a client poorly, or make a mistake in the preparation of their accounts, they would almost certainly suffer financially.

This can put a strain on business relationships and without PI insurance in place, your accountancy business would be required to resolve the issue itself. Depending on how serious the mistake was, it could end up costing your business thousands of pounds in putting the error right.

Association of Chartered Certified Accountants (ACCA), Chartered Institute of Management Accountants (CIMA), and the Institute of Chartered Accountants in England and Wales (ICAEW) require their members to have a minimum limit of PI insurance in order to practice. 

Lawyers

Solicitors’ Professional Indemnity insurance is mandatory for all practicing law firms as a requirement of the profession’s regulatory bodies. By providing cover against civil liability claims, it enhances a firm’s financial security, while also protecting the law firms’ clients. Allegations of professional negligence can be difficult and expensive to defend, especially when they relate to events from a long time ago. Key staff may have left since, and even those who were involved can forget details of a case.

Music Teachers

If you give advice to your students during your lessons, then you’ll need Professional Indemnity insurance to protect your reputation and livelihood as a music teacher. Professional Indemnity insurance will cover your legal liability if you are deemed to have provided negligent advice to a student.

Business Consultants

As a business consultant the advice you give to your clients needs to get the results they are looking for.

You will work closely with your client to create a well-planned roadmap for success and growth for their business. If the results don’t meet your clients’ expectations, then you could be faced with a claim of alleged negligence. This instance can arise even if your client did not allocate the agreed resources to your plan.

Professional Indemnity insurance will respond to provide cover for you defending against the claim.

Photographers

Your client alleges that the photographs you’ve taken for them aren't suitable for use for a project, or a memory card in your camera corrupts and you lose all the day's photos. The client claims against you for the cost of re-organising the shoot.

Professional Indemnity insurance will respond to cover the cost of this claim.

Creative Professionals

For self-employed professionals working in the creative industry Professional Indemnity insurance is a crucial type of insurance protection.

Whether you are a copywriter, graphic designer, website developer, or a social media marketer, your clients will be reliant on the work you complete for them generating improved performance for their business.

Yet, because a lot of creative work is subjective it means it is open to misinterpretation, which is why PI cover is so important.

You might have created a fantastic piece of work that your client loves, but if it doesn’t resonate with the clients’ target markets, then you could be blamed for its failure to improve sales and find yourself on the receiving end of a claim of negligent work.

If you are subject to a claim of alleged negligence that your client claims has cost them money, then settling the claim and covering the costs could run into thousands of pounds if you don’t have PI insurance in place at the time the claim is made. As a self-employed professional, can you afford to be without cover?

 


Do you need Professional Indemnity insurance if you have self-employed staff?

If you are a self-employed professional who is working for an end-client, agency or other organisation, then it is highly likely that you will need to have your own Professional Indemnity policy in place, as you might not be covered by the Professional Indemnity insurance of the hiring party.

However, if you employ the services of self-employed professionals such as contractors, then it is likely that you are offering professional services, advice and/or designs to your clients. Therefore, you will need your own Professional Indemnity insurance to ensure your business is protected.

This is the same for freelancers who outsource work to other freelancers when they need assistance covering workload.

 


 

How much is the typical cost of Professional Indemnity insurance?

PI insurance is relatively inexpensive and can start from £8.00 per month, depending on your profession and the level of cover you need.

As an example, a graphic designer who operates through a Limited company with a £50,000 annual turnover, who requires £500,000 of cover, will currently pay £148.96 annually with Markel Direct (or £14.90 if paid monthly). Quote correct as of 30.09.2021.

 

How to find the best Professional Indemnity insurance if you're self-employed

Professional Indemnity insurance can be found via many providers online in a Google search. Your accountant will likely be able to recommend a provider who they know.

Recommendations from fellow freelancers about who provides the best PI insurance are popular. You’ll find that people you know will have their own opinion about who offers the best cover, which is typically dependent on the price of cover.

Like most insurances, Professional Indemnity insurance doesn’t become beneficial until you need it. You can purchase an expensive policy, yet not need to claim from it for many years.

Either way, it is important to ensure the PI insurance that you have will cover your contractual requirements for any given project that you are working on. Any rise in cover that is required will likely mean a slight rise in the cost of the policy.

 


What is ‘run off’ cover?

It is important to remember that a professional’s duty to their client does not necessarily end when the professional’s business ceases to exist. Professional Indemnity ‘run off’ cover is a policy that is typically taken out when a business stops trading.

‘Run off’ cover will provide indemnity cover for the cost of defending a claim made against those insured under the policy and will cover the losses incurred should the claim be upheld against those insured.

A reason for needing run off cover is if you decide to retire. If you are looking to close your business and wind down, then the last thing you want is a claim being made against you that could have a negative impact on your retirement fund.

There are many other reasons why a self-employed professional might stop trading, including: foreclosure, sale, merger, acquisition or the company owner may simply want a fresh challenge.

Placing a business into run off often results in a discounted premium in recognition that the company is no longer actively trading. The cost of cover can typically decrease year-on-year as the risk of a claim arising decreases.

 

If you need to take out insurance or a renewal is approaching, why not get a quote from Markel Direct, with a 10% discount for IPSE members.

 


Useful links and resources

 

Sources:

(1) https://www.nmc.org.uk/registration/your-registration/professional-indemnity-arrangement/

(2) https://www.qcs.co.uk/ask-sheila/carers-required-business-insurance/

 

 


 

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