Professional Indemnity Insurance – is the minimum right?
PI Expert is often asked by clients for information on the level of Professional Indemnity Insurance (PII) cover that they should buy. Typically this will be asked by businesses that do not have an industry body that lays down a minimum requirement for cover.
For professions that have a regulatory body such as Solicitors, Accountants, Surveyors, Insurance Brokers, IFA’s and Mortgage Advisors there is a set minimum laid down which should be used as a base from which to work when calculating the firms potential exposure to claims. PI Expert wants to encourage these firms to think twice about the limit of cover they really require.
It is vital to put a great deal of thought into your firms PI insurance limits and while on some occasions the minimum cover required by a regulatory body is the right level of cover for a firm, this is frequently not the case. In fact relying on the minimum level of cover as a basis for buying protection is a dangerous attitude to adopt.
Take for example General Insurance Brokers. The FSA lay down a minimum requirement for Professional Indemnity Insurance which at the time of writing is €1,120,200 for a single claim and €1,680,300 in aggregate. An incorrectly insured factory building that is destroyed by fire could wipe out the minimum FSA PII sum insured on defence costs alone!
Similarly if a business interruption sum insured for increased cost of working is forecast incorrectly, a PII claim of many millions of pounds can result. Such claims would probably be enough to take most small to medium sized brokers out of business, as well as their clients.
Lawyers, particularly those practising in the conveyancing field, or Surveyors who carry out Mortgage Valuations or Portfolio valuations can also fall into this trap. The Professional Indemnity market for both of these professions is particularly difficult at this time, so obtaining increased limits can be costly.
Accountants also fall in to this category; for example the minimum PI requirement laid down by Institute of Chartered Accountants of England and Wales (ICEAW) is two and a half times fee income. What accountancy forms should be considering is not what the minimum level that is required, but what the financial impact would be of providing incorrect advice to a larger client in respect of their VAT liability or corporation tax?
If these calculations were wrong would a claim against the firm wipe out the PII Limit? If so, remember that with sole trader and partnerships it is the individual not the firm that bears the ultimate cost, even to the loss of their own assets or the shirt off their back to quote a famous maxim.
So regardless of whether an individual or firm has an industry body that sets a minimum cover limit the cover limit for PII cover, it is essential to ensure whether that limit is adequate. The cost of buying higher levels of cover is often less expensive than firms expect as PII premium costs do not increase in direct proportion to chosen and, in the event of a claim, buying the correct level of cover will make the difference to the insured firms survival.
PI Expert offer specialist help and advice to all types of professions for their Professional Indemnity Insurance (PII) cover. Call 01825 745 410 for a quotation.