The problem with PI insurance: how to obtain a sufficient level of cover

Hard market conditions, coupled with insurer capacity, have caused professional indemnity (PI) insurance premiums to skyrocket in recent years. 

This is especially the case for those working in high-risk sectors where mistakes are often made more frequently.  

The growing cost of PI premiums is such that in May of this year, one chartered financial planner told the FT Adviser he had witnessed a 38.7% increase in the price of his premiums since the May 2021 renewal. 

Yet this type of insurance remains an essential security measure for businesses or self-employed individuals dealing with third party data and high risk work and provides cover if a client is left dissatisfied by a service.  

“PI insurance protects professionals and their businesses against claims made by a client or third party who alleges they have suffered a loss as a result of non-performance, professional negligence and/or breach of contract,” said Angela Irvine, sales director of Birmingham-based specialist insurance broker, The Bletchley Group. 

“In a sector like construction for instance, the policy protects contractors and their subcontractors in the event that a claim is made against them alleging errors in their work, incorrect designs or professional negligence causing financial loss.”

So if the odds are stacked somewhat against you, how can you acquire a reasonable level of cover? 

“Planning ahead of your insurance renewal is an important first step to securing future protection,” Angela advised. 

“Arranging a meeting with your insurance broker to discuss the continuation of your cover at least three months before the end of your policy period is a good way to start the process.”

The timely completion of renewal forms, and provision of full risk management activities, will also assist a smoother acquisition of cover. 

Choosing the right insurance broker is essential too; working with an experienced broker with strong market knowledge and relationships can help you navigate a tricky market and aid a clearer understanding of your options. 

The right broker will also comprehend the counterproductivity of flooding the market as insurers will not look to quote if too many brokers are involved. 

As for the cost of cover, the only real means of keeping the price down is to provide as much information about your business activities as possible. 

Reducing the expense of PI insurance premiums could also be achieved through an aggregate basis of cover where all claims are covered by the full limit of insurance provided.

However, despite this being the only option available in some cases, an aggregate policy is unlikely to give you a sufficient amount of cover. 

Instead, and where available, an ‘any one claim’ policy offers more protection as each claim can be covered up to the established limit, thereby decreasing the likelihood you will have to make up any excess cost. 

“The importance of ensuring you have appropriate cover is essential to avoiding additional expenses. We had a client whose completion of a new build development was alleged to have areas with faulty design. The claimant’s allegation was upheld in court and our client’s PI insurer paid out around £3 million in rectification costs and legal costs,” Angela said.

This article was featured by the National Federation of Builders.