Cost/How Much Professional Indemnity

18/06/2013 -- Mary Simpson
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The price you pay for professional indemnity insurance (PII) depends significantly on profession - premiums can vary widely 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, £2m to £5 million worth of cover is usually considered adequate

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 professional liability insurance for practitioners in your field at reduced rates.

In insurance speak, the maximum damages that could be awarded against you are known as the limit of indemnity.

You need to confirm whether the limit of indemnity will cover court costs or if they are included in the limit – there’s 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.

You can usually buy professional indemnity insurance as part of a complete liability package alongside employers liability insurance and public liability insurance.