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[I561]It Professional Indemnity Insurance

by Andrew Doyle, And

Depending on your line of work you may be inclined to take out professional indemnity insurance, often small businesses that give specialist advice or are selling their skills to a client need to be covered against negligent claims. Professional Indemnity covers the cost of any third party claim for compensation over professional acts and will cover the legal expense attached to the claim. The majority of professional businesses take out PI insurance but sometimes depending on the role that you undertake, it may be required and often companies will only hire your services if you have PI insurance in place. Some of the professional positions in which PI insurance is expected include advisory and knowledge based roles such as accountants or lawyers and IT professionals such as designers or consultants. Often legal expenses in professional indemnity cases can be high as companies often seek to defend their professional name and their businesses integrity; generally PI claims are against the professionalism of a business and can have serious knock on effects towards the reputation of the company in question. Mistakes can be made in even the best run business, for instance an IT company may create a website or piece of software that contains bugs or faults and this could have potentially disastrous effects or costs for clients, these events need to be considered in any modern professional's business insurance policy.

Cover Options

Professional indemnity will cover several different types of claims against professional groups.

• Negligent acts or errors during the completion of the businesses duties.
• Unintentional infringement of copyright laws or intellectual rights.
• Dishonesty or unintentional slander during the completion of the contract.
• An unintentional breach of confidence with the client.
• A loss of data or documents entrusted into your care by the client.

Taking out Professional Indemnity Insurance

The first thing you should do when looking into PI insurance is to shop around for the best quotes for the level of cover you require either from an insurance broker or direct from the insurance companies. Don't forget that often when you get cheaper quotes it often goes in hand with less cover. When looking into your own professional cover it is a sensible option to take into account what similar companies or groups to your own are doing and the cover they have available. Even if you are working in conjunction with other companies that have PI insurance, you should not presume that you are covered, so find out if it expressively covers you in any documentation that can be provided. If you are working abroad also ensure that you policy covers different countries and that the terms of the cover are the same.

Sometimes there can be specialist requirements for insurance policies in different countries, so get in contact with your insurance company or broker to make sure you are completely covered. Professional indemnity cover is also required for working in large teams or multidiscipline professional groups, even if the majority of those within it have PI insurance, it is still practically impossible to prove for certain who made individual contributions to the teams creative process, thus meaning everyone has to have professional indemnity. Another important element is to ensure that you are constantly covered; you need to be insured at the time of the incident and the time of the claim. So if you are looking to end your policy then a suitable “run off” cover period after the policy has been cancelled needs to be organised with your insurer. This also applies to moving between insurance companies or policies, run off cover needs to provide insurance for previous incidents even if at the time of the claim you are with a new insurer. Sometimes this means you need to create agreements between insurance companies to cover certain periods or cover for instances before the cover started with the new insurer.

The Professional Indemnity (PI) market is currently in its soft phase, with insurers still placing emphasis on volume at the expense of profit.

And what of the future? It is certain that at some stage the market will enter harder conditions. There is uncertainty as to when the market might harden and by how much. Invariably the deeper and more prolonged the soft market the more pronounced the adjustment will be when it comes.

Events in insurance, as in life, are powerful and unpredictable. What future events might conspire, individually or collectively, to prompt a return to harder market conditions? The following is a list, by no means exhaustive, of the likely culprits:-

1) The Credit Crunch - will have three adverse effects on the insurance market. First, there is likely to be an increase in the cost of capital as its availability becomes scarce. Second, a reduction in the asset base of major insurers as sub-prime losses erode balance sheets ? further reducing the capital available required to underwrite risks. Third, an increase in credit crunch liability claims as those who have suffered losses (home owners, shareholders etc) seek to recover from professional advisers, company directors etc.

2) Investment Income - a combination of increased stock market volatility and reducing interest rates could see insurer's ability to generate investment income curtailed.

3) Environmental Factors - after two relatively benign years of (insured) natural catastrophes, could 2008 see a return to more usual levels of claim - particularly in relation to the hurricane season?

4) Economic Factors - a downturn in the economy hits the insurance industry in two ways - invariably an increase in the cost of claims allied to a reduced pool of economic activity from which to collect premiums.

And finally - unforeseen events aside, our current prediction is that whilst the market is unlikely to harden during 2008, prices could well start to rise towards the start of 2009.

As ever, forewarned is, or should be, forearmed...

Griffiths & Armour Professional Risks acts as manager for the professional indemnity division of Griffiths & Armour.

Griffiths & Armour Professional Risks Ltd is an appointed representative of Griffiths & Armour which is authorised and regulated by the Financial Services Authority.

All rights reserved. This document does not present a complete or comprehensive statement of fact or the law, nor does it constitute legal advice. It is intended only to highlight issues that might be of interest to Griffiths & Armour clients; specialist legal advice may be required where appropriate. Where links to third party websites are provided, we accept no responsibility for their content.

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About Author

Both Andrew Doyle & Paul Berg are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Andrew Doyle has sinced written about articles on various topics from Family Concerns, Family Concerns and Home Management. The author is a contributing writer for jltbis.co.uk. JLT Business Insurance Services are a leading provider of and. Andrew Doyle's top article generates over 74000 views. to your Favourites.

Paul Berg has sinced written about articles on various topics from Insurance for Business, Insurance. Paul Berg is the owner of Griffiths & Armour, UK's leading independent brokers, risk managers and financial advisers. We specialise in professi. Paul Berg's top article generates over 880 views. to your Favourites.