The Cost of Professional Indemnity Insurance

Should you consider Professional Indemnity Insurance for your business?

Professional Indemnity Insurance, often referred to as ‘PI insurance’ is a cover that is becoming more and more important for businesses to consider. PI insurance is designed to protect businesses for a failure in their professional skill, design and advice to a third party, for loss as a result of:

• Professional negligence
• Slander or libel
• Non-performance
• Breach of contract

This list is not exhaustive and failure to select the right policy could leave a business exposed and lead to demands for huge pay outs, leaving business owners asking themselves, can I afford not to have professional indemnity insurance? See: Do I need professional indemnity insurance?

How much does Professional Indemnity Insurance cost?

The annual cost of PI insurance varies depending on a number of factors, such as the level of cover and the type of work undertaken.

Moreover, internal processes such as the levels and types of staff training provided, use of sub-contractors and the way in which they are monitored and the way in which contracts are negotiated and agreed could also have an impact on the insurance premium.

Working with an insurance broker is a must and a great way to keep costs down, this is because brokers not only have access to a wide range of insurance providers, policies and premiums, but brokers also know what information is required to help make applying for PI insurance an efficient and most importantly, cost effective process.

PI Insurance on average, provides cover between £250k to £5m and premiums can start from as low as £400 per year, or as little as around £35 per month. The difference in cost between £1m and £5m worth of cover might not be as high as you would think, so it is worth asking your broker for a range of quotes.

The true cost of Professional Indemnity Insurance

One thing can be said; the annual premium for PI insurance is certainly going to be lower than the cost of any potential pay out as a result of a successful claim against a business.

When you consider the average cost of a PI insurance claim, the reality of just how costly a professional mistake could be to a business becomes very apparent.

One claim example provided by Tokio Marine HCC, shows a claim made against a building contractor working on a new school. The claim was for the ‘structural failure’ of a new building. Experts concluded the failure was as a result of design defects and the contractor was ordered to pay a settlement of £110,000, plus an additional £15,000 in legal costs.

This example alone highlights just how significant the costs can be following a claim and how crucial adequate PI insurance cover is, should the worst happen, to protect a business and its assets.