Why your business needs professional indemnity insurance

If you’re wondering, "Do I need professional indemnity insurance?" this guide is here to help.

But before we look at why your business needs professional indemnity (PI) insurance, let’s shed some light on what it actually is.

Professional indemnity insurance is there to protect you if a client claims you didn’t do your job properly. It mops up the costs associated with the legal process, pays any compensation owed, and – with any luck – upholds your reputation along the way.

You might think you’re immune to messing up, but we all do it from time to time. Even the most professional professional gets things wrong on occasion. Or someone gets it wrong on their behalf.

Even when you’ve done nothing wrong at all, but somebody says you have – you’ll need legal advice and representation. 

So who needs PI insurance?

You’ll need professional indemnity insurance if your business:

• provides professional services, such as expert advice, consultancy, or creative work like graphic design or web development,
• faces potential disputes over quality, negligence, or copyright infringement,
• is regulated by an industry body that requires you to have PI cover, eg RIBA for architects.

In other words, if your expertise and reputation are central to your business, professional indemnity insurance is essential.

How important is professional indemnity insurance?

Things don’t always go as planned. Subcontractors might mess up, delays might occur, or errors might happen. Even if the mistake isn’t yours, you can be held accountable. And clients can sue for the entire project’s value, not just your share, which makes the legal costs skyrocket.

For certain professions, such as architects and accountants, professional indemnity insurance isn’t just advisable – it’s compulsory. Even though professional indemnity insurance isn’t a legal requirement, regulatory bodies often require their members to have it. Especially in high-stakes professions where mistakes can have serious consequences.

For example, architects and surveyors are responsible for structural safety, while accountants and IT companies deal with sensitive, personal, and financial data. In these fields, mistakes can lead to significant financial losses, legal disputes, or even risks to public safety, making PI insurance essential to safeguard both professionals and their clients.

Most professional people are exactly that and do a grand job. Ironically, you need the most help when you haven't actually done anything wrong...spurious accusations happen all the time and are ferociously expensive to fight.

So, how does PI help? Is professional indemnity insurance worth having?

What are the benefits of having professional indemnity insurance?

If you're on the receiving end of a claim, regardless of its validity, it's going to be emotionally and financially draining to deal with on your own. You'll be confused about the legal stuff and worried about what's going to happen to you and your business.

The only certainty is the sleepless nights, where you’re left wondering:

What happens if I don’t have professional indemnity insurance?

Can I afford a long legal battle? Or even a short one?

Will I have time to deal with this and look after my clients?

Who can I go to for advice?

What happens if I lose?

Your time, your money, your business, and your reputation – these are the things your professional indemnity policy protects.

How? Well, your insurer has two essential things that you (probably) don't: legal expertise and deep pockets. It hands the legal stuff to its solicitors to prepare your defence and fight your corner. It pays their bills and compensates your client if needs be too.

You have to give them the stuff they need to help, of course, but otherwise you can more or less let them get on with it.

No eye-wateringly expensive bills. No legal action. No lost clients. No lost reputation. Just business as usual.

Still unsure? Here are 5 reasons why you need PI insurance:

1. We all make mistakes

All the will in the world, all the best intentions, and a shedload of knowledge and expertise go a long, long way. But they don’t make you perfect.

Sometimes the smallest of mistakes can lead to bigger things. Better safe than sorry.

2. Your Ts & Cs aren’t enough

Asking a client to sign a contract before you start a job and having terms and conditions written in is always a good idea. They set out the parameters of how you’ll work, what’s expected, and what’s not.

You can make them as feisty and as detailed as you like. Seemingly watertight even.

But if something does go wrong, your client won't care two or even three hoots what your Ts & Cs say. If they're left out of pocket and think it's your fault, they'll want you to pay. And who can blame them?

3. You have a duty of care

You may think the world of your clients and under normal circumstances, they might have a pretty high opinion of you too.

Building your working relationships on trust and transparency, with respect and good faith as the cornerstones, is a good thing. But if you think there’s nothing that can’t be fixed with a chat, a handshake, and a smile, you could be in for a rude awakening.

Respect and good faith alone will be worth nothing when a client's asking why their project's gone £50k over budget. Or why their new website isn't generating the revenue you said it would. Or why they've got a big fine for filing a late tax return.

Clients trust you to deliver. Having PI insurance shows you’re professional, responsible, and prepared.

4. You’re in it for the long run

One of the best things about running your own business is being your own boss. If you work on a contract basis it means you’re able to get in, get out, get paid, and move on.

But your liability doesn’t just stop when your contract does. And mistakes can take weeks, months, even years to rear their ugly heads.

Contract length and timing is actually pretty irrelevant. If your mistake has cost your client, no matter how far in the dim and distant past, they'll come after you regardless.

5. The numbers add up

Maybe you view professional indemnity cover as an expensive luxury. You could do without having to shell out for yet another monthly Direct Debit. (Interest-free, by the way.)

There are many, many more important things you could spend a couple of hundred quid on. That new iPhone, for example. Or a caramel latte every other day (don't forget the croissant).

Besides which, if something does go wrong, you can call your solicitor for help. They only charge about £150 an hour or something…

Maybe professional indemnity insurance isn’t so expensive after all.  

The ultimate safety net

More than just a certificate and a ticked box, professional indemnity insurance is a brilliant mix of counsellor, legal expert, comfy sofa, bodyguard, PR guru, and exceptionally large money box.

So, really, do I need professional indemnity insurance? If you’ve read all the way to the end of this blog, the answer is likely: yes.

Discover more about the protection and peace of mind professional indemnity insurance offers. Or call the team on 0345 222 5391.

Image under licence from Shutterstock.