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The policy wording
Ideally this should be specific not generic. One-size-fits-all policies rarely include the exact cover you need.
Different businesses face different risks and dedicated wordings are particularly important if you’re in IT, marketing/media, accountancy/bookkeeping, architecture, engineering, surveying, or anything medical/therapy related.
For example, some IT people need cover for supplying deliverables; design agencies benefit from pre-emptive damage limitation cover; chartered accountants’ cover has to be ICAEW approved.
An insurer that gives specific cover under specific wordings understands what you do. That makes a big difference, especially if there’s a claim against you.
The only way to check you have what you need is to read the wording – or ask your broker.
Level of cover
Your policy’s level of cover (or ‘limit of indemnity’) is the maximum amount the insurer pays for – depending on your type of policy – one claim or for all claims made against you. Not surprisingly, it’s the single biggest ‘rating factor’. More cover equals more premium.
Which level of cover is right for you depends on a lot of things. It’s probably a big enough subject to justify a guide in its own right but the main things to think about are:
Specifically, you should think about the worst-case scenario. What can go wrong? Could it have a knock-on effect? Will it cost your client money to fix? If so, how much?
Clients suing for professional negligence don’t hold back. The amount they claim is likely to be the cost of the contract, plus any damages on top.
Don’t forget your policy pays your legal costs too, so make sure you factor that in. Solictors aren’t cheap and even simple cases can cost tens, even hundreds of thousands of pounds to resolve.
Your level of cover should be enough to cover all possible circumstances, however unlikely.
If pushed to recommend a figure, we’d say don’t go for less than £250,000 Or, better still, a belt and braces £1m.
Any one claim or in the aggregate?
If there’s a claim against you, the type of policy you have is as important as its level of cover. Look for these words on your quote:
Any one claim (also known as each and every claim):
“The level of cover applies to each claim made during one policy period. The legal costs of a claim are paid in addition to this and to the same level of cover (so, in effect, cover is doubled). There’s usually no limit to the number of claims you can make.“
In the aggregate (also known as all claims):
“The level of cover applies to the sum of all accumulated claims made in one policy period, including all legal costs. It’s like having a pot of money to fund all parts of all claims made against you. But when it’s gone it’s gone.”
An any one claim policy offers more protection because there’s no danger of the cover ‘running out’ in the same way an aggregate policy could. It usually costs more as a result.
Geographical and jurisdictional limits
Geographical limits refer to where in the world you can work, and jurisdiction (or ‘applicable courts’) refers to the country or regional law your contracts must be subject to for you to be covered.
Limits for both are usually defined as: ‘UK’, ‘EU’, ‘worldwide excluding USA and Canada’, and ‘worldwide’. Your quote will have a combination of two of these. It might look something like this:
Geographical limits: worldwide
Jurisdiction: worldwide, excluding USA & Canada
In this example, you can work anywhere in the world but you won’t be covered if you’re sued in a US court.
Americans and Canadians tend to sue first and ask questions later, so most insurers don’t cover US and Canadian law contracts as standard. They can be covered, but it means careful underwriting and a relatively hefty premium.
Sometimes called a ‘deductible’, this is the amount you pay towards a claim.
When/if you pay this depends whether your excess is ‘costs inclusive’ or ‘costs in addition’. The ‘costs’ in this case being the amount of money needed to defend you.
A costs inclusive excess means you’ll pay towards legal and defence costs, even if the claim is spurious.
A costs in addition excess means you’ll pay towards compensation costs only, not legal costs. So, if an allegation is made against you, and the insurer’s legal team successfully defends it, it’s possible it won’t cost you a penny.
Costs in addition policies work out better for you, but they cost more and not all insurers offer them.
Retro for short. The earliest date from which your work is covered, regardless of the start date of the policy. In other words, your insurer extends the insurance backwards to cover work you did before you bought your policy.
If you change insurer at renewal, your new insurer should ask what your retro date is, or at least ask if you’re currently insured. This means your past work stays covered and your new insurer takes on your past liability. Even if they’ve never insured you before.
Some insurers include retro as standard, some charge extra for it and some won’t offer it at all. It depends what you do and it’s worth finding out if your quote includes it.
Also, some insurers include retro but don’t specify an effective date for it. Confusingly, their quote might say: “retroactive date – none.” It doesn’t mean there’s no cover; just that there’s no need to note the date it starts.
Subcontractors and freelancers
If you use additional pairs of hands to help complete your contracts, their work needs to be covered too. That should be through their professional indemnity insurance or through yours.
But your helper might not have professional indemnity insurance. And it’s possible your policy excludes claims against you arising from your subcontractor’s negligence. Either way, you don’t want to be blamed for their mistakes.
Insurers’ stance on this differs so make sure you check. Some cover particular types of outside help and not others, some cover all types regardless and – depending on the nature and value of the work – some add clauses to your insurance to cover or exclude claims in certain circumstances.
Continuous v annual
As the name suggests, continuous insurance keeps running till it’s cancelled. It doesn’t need renewal every year and how much you pay doesn’t change (unless your cover does).
Annual insurance lasts for 12 months. You’ll need to renew it each year to stay covered, and the cost to renew might well be more.
Continuous policies are (usually) paid by monthly or annual interest-free Direct Debit; annual policies by credit or debit card.
Some view continuous policies as the insurer tying you in or keeping your business without you noticing. In reality, they probably help you as much as the insurer.
That’s because professional indemnity insurance is a ‘claims made’ policy. For you to be covered, it has to be running when you work and when a claim is made. Continuous cover means you’re never uninsured – even if you forget to renew.
Watch out for hidden costs.
If you pay monthly is it interest-free? Does your broker or insurer charge to
resend documents or make mid-term changes?
In terms of the insurance itself, are you in safe hands? What’s the insurer’s security rating? What’s their stance on paying claims and how do you find out? (Some are helpful and reasonable; some refuse everything.)
Find out as much as you can about who’s covering you from their customer feedback, and try searching your industry’s forums for their name.
One or two bad experiences shouldn’t be anything to worry about, but it pays to know beforehand if your new insurer is a pain when you want something done.
Broker or direct insurer?
The wisdom of Financial Conduct Authority (FCA) guidelines means some insurers don’t give advice; even about their own policies.
This is called ‘non advised sales’ and it means all you can get is generic information about the insurance they sell. It’s possible a direct insurer is cheaper, but you’re still wasting your money if you end up with the wrong insurance.
For specific and individual help and advice, you’ll need to talk to a broker that works on an ‘advised sales’ basis. This is a good thing because it usually means you’ll deal with a qualified insurance professional and not just a call centre rep.
And don’t forget that a broker is on your side, not the insurer’s. That matters if there’s a claim.
(Source : PolicyBee, Buyer's guide to... Professional indemnity insurance)