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What professional indemnity insurance covers
A PI policy responds when a client alleges that your company's professional advice, designs, calculations, or services were negligent and caused them a financial loss. The policy typically covers your legal defence costs — which can be substantial even when you are not at fault — and any damages or settlements awarded against you. Some policies also cover breach of confidentiality, intellectual property infringement, or defamation arising from professional activities.
Understanding the claims-made structure
Unlike most insurance, PI policies operate on a claims-made basis: the policy in force when the claim is notified (not when the work was carried out) responds to the claim. This means that if you cancel your PI policy and a client subsequently makes a claim relating to work done years earlier, you will have no cover unless you arranged run-off cover. When changing insurer, the new policy's retroactive date — the earliest date from which past work is covered — should ideally go back to the start of your trading history.
When regulators or clients require it
PI insurance is compulsory for firms regulated by the FCA (if carrying on certain activities), RICS members, ICAEW accountants, solicitors, architects, and others. Many public-sector and corporate procurement processes will not accept a tender without evidence of adequate PI cover at a specified minimum limit. Check whether your professional body, regulator, or largest client contract specifies a minimum sum insured — and ensure your actual limit reflects the realistic value of contracts you undertake.
Choosing the right limit
The limit of indemnity should reflect the potential financial exposure arising from your largest or most complex engagements — not your average project. A single negligence claim on a large advisory or design contract can easily exceed a limit that appears adequate for typical work. Review your limit annually alongside your client mix. If a new contract significantly increases your maximum potential exposure, notify your broker before signing.
Frequently asked questions
Can a lender require professional indemnity insurance as a loan condition?
Yes, particularly where the loan is to a professional services firm whose revenue and therefore debt-servicing capacity depends on maintaining its licence to practise. Loss of PI cover could mean loss of regulatory authorisation, which would materially impair the business's ability to repay.
What is run-off cover and how long should I maintain it?
Run-off cover maintains PI protection for claims arising from work done before a company closed or changed insurer, even though the company is no longer trading or buying new cover. Standard professional guidance suggests maintaining run-off for at least six years, given the typical limitation period for contract claims in England and Wales.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.