Professional indemnity insurance is one such measure you can take. If you are unfamiliar with this, here is everything you need to know about professional indemnity insurance for your innovation.
Essentially, professional indemnity insurance reduces financial and legal risk. Also known as professional liability insurance (and commonly referred to as errors and omissions insurance in America), it reduces risk by providing protection against accidental copyright breaches, dishonest advice, or designs – any of which could lead to financial losses for a client and result in a claim against your business.
By investing in this form of insurance, you allow your innovation to focus on the more important tasks, providing the freedom to be creative and expand your business, while also ensuring your venture is protected, should a claim be made.
If a claim should arise, professional indemnity insurance will cover the cost of a company’s legal defence as well as any compensation that may be owed.
This insurance covers a wide range of areas, including:
In addition, in the event that your company ceases trading, your professional indemnity insurance can provide ‘run off’ cover. This will protect you if a claim were to be brought against this closed business.
This type of insurance also provides retroactive cover, which will provide insurance for work that has been completed in the past. This can date back to when a company first began trading.
Building and growing your business requires a lot of time and investment, so it makes sense to protect it. A successful claim could damage your company’s reputation, while a large payout could lead to serious financial trouble. Gallagher’s Professional indemnity insurance provides cover for your business, reducing the risk and financial implications.
As a general rule, if your innovation provides advice, consultancy, designs or a similar service, you should consider this form of insurance. Businesses that could benefit from professional indemnity insurance, include:
While professional indemnity insurance is not a legal requirement in the UK, regulators or shareholders do often request that a business has this form of cover, as it provides reassurance and stability. So, if your business operates in any of these above areas, you should consider this protection.
How much cover is needed depends on the individual business. An insurance firm will first carry out an assessment. This will investigate the size of your company, the requirements of the regulatory or professional body, as well as the amount, calibre and power of its clients – this will determine the size of a claim they may be able to bring against you. By carrying out this assessment, an insurer will estimate the cost of a claim, including legal fees, and determine the amount of cover required – from £25,000 up to the millions.
After finding out how much cover your business needs, an insurer will then build a policy for your innovation. When it comes to professional indemnity insurance, there is no one-size-fits-all option.
As such, the cost will differ depending upon clients, contracts, turnover, activities, any previous claims made, the needs of the business and the amount of cover requires from the assessment. The price may also depend on the type of innovation you own, as some industries carry a higher risk than others.
Depending on the individual policy and insurer, there are circumstances that professional indemnity insurance will not cover. This often includes bankruptcy, personal injury, and employers’ liability. This means that professional indemnity insurance alone is not enough, with additional policies required to cover such matters.
While a good form of protection, this cover alone is not enough. If your business works with members of the public, you may also need public liability, or employers’ liability cover, which you must have by law if your business has employees.
Furthermore, policies will have a Limit of Indemnity. This term refers to the maximum pay out the policy will provide in a single event or claim. This limit will be circumstantial, depending on your bespoke policy, the industry of your innovation, the size of the company and the amount of cover obtained.
To surmise, professional indemnity insurance provides cover in instances of breach or dishonesty, and can protect a business from heavy financial losses. As such, it is a worthwhile investment to safeguard your innovation.
By Zak Goldberg
Zak Goldberg is a Law & Business Graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on all areas of law, fintech and business economics.