Insurance policies can be confusing, even for the most experienced of business owner. So, if you’re new to business ownership or freelancing, you’ll may find it difficult to know what to look for, and what represents good value for money, when looking for a professional indemnity insurance quote.
As with most documents, if you look closely at the PI policy wording, you will discover subtle yet significant differences in the cover.
To help you find the right cover for you we’ve put together a few points you should look for to make an informed decision about your cover.
Professional Indemnity Policy Wording
Not every business faces the same risks. Therefore, the policy wording should be specific to the work you do rather than being a generic policy.
As an example, Caunce O’Hara’s policies for offshore energy contractors includes wording that is specifically written for that industry sector. This is wording that would not be relevant to someone working in creative media or in IT for example.
An insurance broker that offers specific cover shows they understand your business and its risks. This make a big difference when it comes to making claim.
Level of PI cover
More cover usually results in a higher premium. The level of cover is the maximum amount the insurer will pay for claims made against the policyholder.
In order to determine how much insurance cover you need, you should assess exactly what you do for your work.
Some questions you need to consider among others, include:
- Do you work at heights?
- How much of your work is manual?
- Do you work with electricity?
- Are you working offshore, ie: on an oil rig?
Any One Claim or in the Aggregate?
These two options determine how much an insurer pays out for claims.
Any One Claim – This type of policy typically costs more than an Aggregate policy because it offers more protection. The level of cover applies to each and every claim made during a policy period. There is usually no limit to the number of claims you can make.
Aggregate – The level of cover applies to the sum of all the accumulated claim made in a policy period. This includes the legal costs.
In layman’s terms, if you have £500,000 of cover and you make a claim for £50,000, then for the remainder of the policy period you would only be able to claim up to a maximum of £450,000, because you would already have claimed for £50,000.
The excess is the amount you will have to pay towards a claim. Typically, a policy with a higher excess means a lower premium.
This ensures that the policy you purchase is covering you for all the past work your business has undertaken.
All professional indemnity policies are written on what is a called a ‘claims made’ basis. This means that when you have a potential claim, or are made aware of a possible claim, the claim will be picked up by the professional indemnity insurer who insures you when you are told of the claim, not who insured you when you did the work that is being claimed against.
For example, if you undertook project work 3 years ago and today someone advises you they have found an error in your work, that has caused them a financial loss, the claim would be picked up by the insurers you are on cover with today.
Hence why it is essential to ensure your PI insurance policy has full retroactive cover in place.
Geographical and Jurisdictional Limits
Geographical limits refer to where in the world you can work. Jurisdiction refers to the country or regional law that your contracts must comply with for you to be covered. Limits for these are usually UK, EU, worldwide excluding USA & Canada, and worldwide.
Run-off cover is a professional indemnity insurance policy taken out when a business stops trading. Run off will provide indemnity to cover the cost of defending a claim made against those insured under the policy and will cover the losses incurred should the claim be upheld against those insured.
It is important to remember that a professional’s duty to their client does not necessarily end when their business ceases to exist.
Typically, the first year of run off cover costs the same as the preceding year of full cover, when the company was still trading. This is due to the chance of potential claims taking a few of years to decrease from an insurer’s perspective. This means there is as much chance of a claim in the first few years of run-off as there was in the years prior to run off.
After the first full year of run-off cover you should see a decrease in your premium.
The length of time needed to maintain run-off cover will vary and depends on the relevant time limits in which a claimant must commence claims proceedings against a professional.
The relevant limitation periods for different types of claims which were set out in the Limitation Act of 1980 are ‘Claims in relation to’…
- recovery of land: 12 years
- a contract: 6 years
- awards in arbitration: 6 years
- debt arising under statute: 6 years
- negligence: 6 years
- breach of trust: 6 years
- tort: 6 years
- personal injury: 3 years
- defamation and malicious falsehood: 1 year
Outsourcing to Subcontractors and Freelancers
Outsourcing work is commonplace in the freelance community. If you use freelancers or subcontractors to assist you with the completion of your work, then you will need to ensure their work is covered too. This would usually be through their own PI insurance policy but can be through your own.
If they do not carry their own PI cover your policy may not cover, you if a claim is made against you due to their mistake or negligence.
It is worthwhile clarifying your position with your insurance provider before you outsource any work, after all you don’t want to be held liable for someone else’s mistakes.
Most PI insurance policies exclude claims relating to bodily injury, but some will include death and bodily injury claims if they arise directly from a breach of your duty of care.
To request a bespoke Professional Indemnity Insurance quote, please call our award-winning team on 0333 321 1403 or click to build a quote online.