Reduce your risk with Professional Indemnity insurance

It’s a question we often get asked by our clients and prospects when looking at their insurance arrangements. If your business doesn’t need it then you could find yourself paying for unnecessary cover but failing to take out cover when it’s critical to the work that you do could end up being a costly mistake.

Let’s look at how the need for cover might arise

It’s a question we often get asked by our clients and prospects when looking at their insurance arrangements. If your business doesn’t need it then you could find yourself paying for unnecessary cover but failing to take out cover when it’s critical to the work that you do could end up being a costly mistake.

Industry Standards – whilst it is not compulsory to hold Professional Indemnity cover, many industries require their members to have cover in place – such as those in the legal profession, some healthcare professionals, accountants, and FCA regulated businesses including insurance advisors

Contract – you may enter into a contract to provide services which requires you to hold professional indemnity cover to a specific limit of indemnity. This might be required by one of your customers or by a main contractor where you are sub-contracting your services to them

You hold personal data – you should consider protecting yourself against claims arising from the loss, accidental release or improper use of that data

Desire for risk transfer – you might wish to protect your business against claims against you for advice you have given, or consultancy work you have undertaken in a professional capacity.

We will look at this in more detail below.

Professional Indemnity claims can be very costly and, sadly, mistakes do happen. Imagine providing advice and consultancy services in good faith and to the best of your ability to a client who pays for your services, but then ultimately finds that the design or specification that you have recommended is not fit for purpose. They incur a substantial loss and then file a lawsuit against your company for giving them that wrongful advice. Not only will you be faced with a claim for damages, you may also suffer reputational damage and be left with a hefty legal bill.

Having Professional Indemnity cover will give you peace of mind that should the worst happen, your business is financially protected.

There is often some confusion amongst manufacturing businesses as to whether they need to take out a PI policy to cover the design elements of their work in the product they are making.

The answer to this question is generally ‘no’. Any loss or damage arising from a fault in the design of the product you have made for sale to a consumer will be a Products Liability claim.

The cover is needed, however, if you are designing a product for another company to manufacture and sell as their own.

For example, ABC Box Company Limited designs and manufactures boxes to sell to customers who then use them for their own packaging and storing needs. The Box Company has an in-house design team and they only design for the products that they make themselves.

This company is not likely to require PI cover.

However, ABC Box Company Limited then sets up a new associated company called ABC Box Design and Consultancy Limited to run alongside its existing operations which creates bespoke designs for boxes for third parties. They also provide a consultancy service. Designs are sold to the third parties who will carry out all manufacturing themselves. The consultancy service is provided for a fee.

The advice and design work is completely separate to the manufacturing business, so this second entity will require PI cover.

If you are unsure whether your business needs the cover, then consider the following questions:

• Do I carry out separate design or consultancy work for an agreed fee?
• Am I giving expert opinion or advice?
• Is there a contract in place that requires me to hold PI cover?

If the answer to any of these questions is yes, then you are likely to need cover.

Still unsure?

At Howden, we are specialists in Professional Indemnity insurance and can help you understand exactly what cover your business requires. Contact us on 020 7543 2807.