When thinking about business insurance, it seems most people think of Public Liability Insurance, although I’ve often heard a combination of names for it, like Public Indemnity insurance!
Professional Indemnity Insurance seems to be less known about, but for businesses that offer a advice, or a service, rather than a physical product (although many of the latter still need it), it is essential cover.
In its simplest form, Professional Indemnity insurance provides cover for businesses against claims made by third parties for losses suffered as a result of an error, omission or negligence in carrying out their professional duties.
Accountants – A partner of the insured misappropriated money from client accounts – Amount Paid £500,000
Estate Agents – It was alleged that the insured undersold a property. Five months later it was resold for double the previous price – Amount Paid £200,000
A commercial shown on television had the wrong soundtrack – Amount Paid £100,000
One of the most important things you need to know about Professional Indemnity insurance
What many business owners don’t realise is professional indemnity insurance policies are on a ‘claims made’ basis, which means that claims are handled by the insurance company currently covering you when the claim is made, and not your insurer from the time the alleged incident took place. Many claims are made against professionals years after services are complete.
Essentially, this means two really important things:-
1. It’s important your Professional Indemnity policy remains current and up to date at all times, as it this policy that will protect you if a claim is made for a piece of work you did years ago.
2. It’s essential you have the correct ‘retroactive date’ on your professional indemnity policy. The retroactive date is a date in the past (usually in line with when you first purchased professional indemnity insurance) which is the earliest date in the past that your cover will reach back. Sometimes, when moving insurers, if not advised otherwise, an insurance company will set the retroactive date to the start of your new policy, meaning you are not covered for any work you did before this date.
Example – XYZ Ltd buys a professional indemnity policy that they renew on the 1st January 2012. The policy has a Retroactive date of 1st January 2002. They are therefore covered for claims made against them after 1st January 2012 for any work that they have done since 1st January 2002.
When reviewing your professional indemnity insurance, its really important to use an experienced business insurance broker who can look out for this and other areas of concern for you.