Professional Indemnity Insurance – A Freelancers Guide

You’ve just received the call from your recruitment agent. Your told you’ve won the contract. Yippee! It’s paying top dollar and you’ll acquire new skills to boot. Somewhere in the conversation your agent says ‘A contractual condition of this offer is that the client requires you to have £1million PI’. Momentarily your brain is puzzled, Professional Indemnity what?

Professionals like architects, lawyers and accountants and required by law to have PI insurance. Doctors daren’t practice without it. In recent years there’s been a shift towards mandatory professional indemnity conditions for freelancers. So, if your a little unclear about what professional indemnity insurance is and how it protects your business this easy to understand guide might help you.

What Is PI Insurance?

Professional indemnity insurance is a form of business insurance. It protects you if you are accused of losing a client money through mistakes or bad work.

How Does PI Protect Your Business?

As a professional you owe your client a ‘legal duty of care’. If one day you fail to exercise this ‘duty’ and are negligent you may be liable for losses incurred by the client.

PI Insurance acts as a kind of safety net, protecting you from potentially financially crippling claims from dissatisfied clients. If a claim of negligence is made against you professional indemnity will cover the legal costs to defend your status and should you lose, cover any damages you become liable for.

Even if you have done nothing wrong, but a client alleges negligence on your part, the policy will still protect you and pay the legal costs in defending you.

Which Professions Need PI?

Quite simply anyone who provides advice or provides a professional service to clients, be they IT Contractors and Engineers or Accountants and Social Workers. Professional indemnity is often a condition of membership of professional institutions.

How Much PI Cover Should I Buy?
Every firm is different and for this reason there’s no catch-all answer to the amount of professional indemnity you should buy. You’ll know better than anyone the risks your business faces.

When deciding on the right amount of cover, some factors to consider are a) the value of the contract you are working on and b) the financial impact if things did go wrong. Other than that its wise to buy as much cover as you can reasonably afford.

Increasingly clients will set a minimum level of cover before they will do business with you. Most large plc’s require £1mill but this can rise to £2mill for government departments.

What Are Typical PI Premiums?
Professional indemnity premiums are typically based on 1) your turnover 2) the level of indemnity required and 3) the kind of work you do. As a guideline an IT freelancer with a turnover of £75,000 requiring £1 million professional indemnity should expect to pay circa £400 per annum. Lower levels of cover (eg £250,000) tend to be available for circa £200 per annum.

Ginna Johns
Coulson Pritchard Associates