Professional Indemnity Insurance

How Much and The Cost?

What does Professional Indemnity cover cost?

No two businesses are alike.

The cost of the premium will depend on the type of the business, the turnover, the number of employees and the level of risk. Factors such as your location will be taken into consideration, and whether you work abroad.

As you would expect, premiums will vary between different professions for similar levels of cover.

Expect to pay around £170 per annum for £100,000 of cover for a profession such as Marketing or IT/Computer consultancy, if your annual turnover is under £50,000.

Environmental consultants can expect to pay much more, in line with the level of compensation required if it transpires that their advice is seriously flawed.

Government departments can demand that contractors and consultants have at least £5 million worth of professional liability cover.

Some insurance providers recommend a limit of no less than quarter of a million pounds. Generally speaking, the greater the level of cover - anything between £2-£5 million - the better.

What level of Professional Indemnity cover do I need?

Factors you should take into account when deciding the level of cover are the likely legal costs and compensation damages that could be awarded against you. These will depend on:

• The size of contracts you're engaged in
• The overall value of the contracts
• The number of clients, and their turnover (not yours)
• The size of any potential claim that could be made against you.

Do your homework. Read industry magazines in your line of work to assess the levels of risk in your profession and consider joining a professional association which may offer bespoke professional liability insurance for practitioners in your field at reduced rates.

Go for the highest possible level you can afford. In insurance speak, the maximum damages that could be awarded against you are known as the limit of indemnity.

You need to confirm that the limit of indemnity will cover your court costs or if they are included in the limit - there is an important difference, as the cost of litigation alone could be crippling.

What could go wrong?

Marketing Consultant - An advert produced by a Marketing Consultant featured a wrong telephone resulting in loss of sales and damage to the client's reputation. Compensation of £200,000 was awarded against him.

Consulting Engineer - A roof designed by a Consulting Engineer turned out to be sub-standard and not fit for purpose. The courts ordered him to pay over £1.25 million in compensation.

IT Consultant - A computer system designed and installed by an IT Consultant was unable to cope with the volume of users. Damages of over £700,000 were awarded against him.