Professional indemnity insurance

Professional indemnity (PI)—also called professional liability or errors and omissions—answers allegations that your professional services caused a client a financial loss. That is the economic bite for advisers, consultants, designers, accountants, software contractors and a menagerie of niche experts. A PI insurer will fund legal defence and, if you are liable, the damages up to the limit. Done right, it de‑risks contracts; done badly, it voids them. Crucially, PI is not for physical harm: if a client trips in your office or your site work injures someone, that is public liability or employers’ liability (both compulsory for most staff hires under the Employers’ Liability (Compulsory Insurance) Act 1969). PI is for the spreadsheet error that misprices a tender, the requirements document that misses a security constraint, or the drawing that clashes services. Corporate buyers screen for it; many will not on‑board a supplier without evidence of a minimum limit and specific extensions (intellectual property, breach of confidentiality).

The UK PI market softened through 2024–2026 after the post‑Grenfell, pandemic‑era tightening. Underwriters are again open to small-firm risks with clean claims, but fire safety, structural engineering and cladding remain touchy. SME policies are still commonly placed on Lloyd’s paper or UK company markets. Recognisable capacity providers include Hiscox, Markel, AXA XL, Beazley, CFC Underwriting and QBE; brokers placing or packaging SME PI include Lockton, Hettle Andrews and specialist digital brokers. Direct-to-SME portals from Hiscox and Markel Direct compete on sub‑£2m limits for advisory trades. Typical 2026 annual premium ranges (before Insurance Premium Tax at 12%) are: marketing consultant £150–£350; IT contractor £200–£600; management consultant £250–£800; accountant £400–£1,200; architect £600–£2,500. Expect the lower half for micro‑firms with fee income under £150k and no claims in five years; add 10–40% for higher limits, US contracts, or two or more notifiable incidents on the record. For regulated firms, minimum terms narrow choice and push rates higher.

Several UK regulators make PI a condition of practice. The Solicitors Regulation Authority (SRA) mandates cover written on its Minimum Terms and Conditions with a minimum limit of £2m any one claim for partnerships and sole practices and £3m for LLPs and companies. The ICAEW requires member firms to carry cover of at least 2.5 times gross fee income for the last financial year, with a minimum of £100,000 and an upper cap of £10m any one claim, plus restrictions on excesses and authorised insurer lists. RICS regulates chartered surveyors via a turnover‑based matrix of minimum limits (for the smallest firms typically £250k+, scaling to £1m–£2m), strict fire safety exclusions controls and compulsory 6‑year run‑off. The Architects Registration Board (ARB) requires architects to maintain adequate PI, with guidance that limits reflect project values and that fire-safety and cladding exclusions be transparent; 6 years’ run‑off is a practical minimum. The FCA requires many authorised firms (e.g., insurance distributors) to maintain PI to thresholds set in MIPRU, with sterling minima aligned to the former IDD levels. The Bar Standards Board requires self‑employed barristers to be covered by Bar Mutual (with a compulsory primary layer often £2.5m). The British Association for Counselling and Psychotherapy (BACP) expects members to carry adequate PI, commonly £1m.

PI is claims‑made: the policy in force when you first become aware of and notify a claim or a relevant circumstance is the one that responds, provided the error occurred after the policy’s retroactive date. That date is usually the start date of your first-ever PI purchase; keep it as ‘unlimited’ or as early as your trading history allows. Gaps in cover can push the retro date forward, stranding past work. Run‑off cover keeps the policy alive for past work after you cease trading, sell the company or retire. Six years’ run‑off is standard because most contract claims in tort or simple contract are time‑barred after six years under the Limitation Act 1980. But where you sign as a deed, the limitation period is typically 12 years; architects and engineers often maintain 12‑year run‑off (or at least buy 6 years with an option to extend). Solicitors have compulsory six‑year run‑off under SRA terms, with a regulated cap on the run‑off premium.

Limit architecture matters more than the headline number. Many SME PI policies are ‘any one claim’ with defence costs either inside the limit (eroding it) or ‘in addition’ (separate). For professions with high legal‑spend risk—IT project disputes, audit negligence—defence outside the limit is valuable. Some policies are ‘aggregate’ limits (a pot covering all claims in the year), often with an ‘any one claim’ sub‑limit or reinstatement. Your client’s contract may mandate, say, ‘£2m any one claim with defence costs in addition’—if you accept an ‘aggregate including costs’ policy, you may be in breach from day one. Limits are usually set as a multiple of project value or fee income: for advice on a £1m project, £1m–£2m per claim is common; for audit and legal work, £2m–£5m is routine. Check jurisdiction and territory clauses; worldwide excluding USA/Canada is common for base rates, with a US/Canada extension available at a price.

Expect exclusions for deliberate, fraudulent or criminal acts; claims or circumstances you knew about (or ought to have known) before inception; contractual liability that goes beyond your duty of reasonable skill and care (for example, fitness-for-purpose guarantees or liquidated damages you’ve accepted); fines and penalties (including most regulatory fines); insolvency of subcontractors; bodily injury or property damage (except where arising from advice and resulting in pure financial loss if endorsed); pollution (unless sudden and accidental, if endorsed); and US/Canada jurisdiction unless separately purchased. IP infringement is variably treated—marketing, design and software firms should seek explicit cover for unintentional breach of IP rights. Beware warranties around data security or performance—promise a result and you may create an uninsured guarantee. If you routinely sign clients’ paper, pre‑clear indemnities, limitation of liability caps and consequential loss definitions with your broker.

PI pricing is still built around the quartet of discipline, fee income, claim history and contract hygiene. Underwriters look at your last 12 months’ gross fees (and projections), the split by activity (e.g., advisory vs. implementation; domestic vs. US), your largest client exposure, average contract values, and whether you sign clients’ terms. They score your incident culture: do you log and notify ‘circumstances that may give rise’? Two soft losses in three years can add 15–30% to rate. Longer retro dates increase exposure modestly; step‑ups in limit re‑rate non‑linearly (a jump from £1m to £2m may add 35–60%). Excesses (deductibles) for SMEs are often £250–£2,500 per claim on defence and damages. Indicative 2026 SME premiums (plus 12% IPT): marketing consultant £150–£350; IT contractor £200–£600; management consultant £250–£800; accountant £400–£1,200; architect £600–£2,500. Expect an extra loading for cladding/fire safety, structural calculation sign‑off, US jurisdiction, PCI DSS liabilities or unsecured open‑source licence use without governance.

Technology businesses sit on the fault line between PI and cyber. A failed software implementation that corrupts data is classic PI; a ransomware event affecting your systems or those you manage is cyber. Many UK markets now package ‘Tech E&O’ (PI for technology services) with cyber in a blended form so disputes over which policy should respond don’t slow claims. Beazley, CFC and AXA XL all offer integrated wordings for SMEs; Hiscox and Markel have tech‑specific PI with optional cyber, and QBE’s wording can be extended. Ask specifically about cover for confidentiality breach, IP infringement, breach of contract (beyond negligence), and failure of network security causing client loss. If you process personal data, a standalone cyber policy adds first‑party incident response, forensics, ransom negotiation and ICO-facing regulatory cost cover—benefits PI does not provide. The budget answer is a bundle; the sophisticated answer is dovetailing limits and ensuring one policy contains ‘other insurance’ language that minimises finger‑pointing.

For micro‑firms with plain‑vanilla activities, direct purchase from Hiscox or Markel Direct can be efficient. Once client contracts add non‑standard indemnities, or you operate in higher‑risk disciplines, use a broker. Lockton and Hettle Andrews are among UK brokers with PI expertise; CFC, Beazley, AXA XL and QBE typically underwrite via brokers; some insurtechs market to startups but check FCA permissions and UK availability (US‑led platforms like Vouch may not distribute UK PI to all sectors). Your legal duty is the duty of fair presentation under the Insurance Act 2015: disclose every material circumstance a prudent underwriter would want to know, or give sufficient information to put them on notice to ask more, presented clearly and accessibly. A careless non‑disclosure can let an insurer reduce a claim or avoid it proportionately; a deliberate or reckless breach can void the policy. Keep an up‑to‑date proposal pack: fee splits, top clients, contract templates, incident log.

Two rules: notify early, and stop admitting liability. Most PI policies require you to notify a claim or any circumstance likely to give rise to a claim ‘as soon as practicable’ within the policy period. A frosty email alleging loss, a threat to withhold payment, or a discovered error you’ll need to fix are all notifiable. Late notification is a classic coverage fight. A good broker will triage facts, frame the notice, and steer you to panel solicitors. Once notified, insurers may fund pre‑action correspondence to de‑escalate. Keep privilege in mind; mark legal communications ‘subject to legal professional privilege’ where appropriate. If you are a micro‑business and a UK insurer handles your claim unfairly, you can complain to the Financial Ombudsman Service; and if your insurer fails financially, the Financial Services Compensation Scheme may protect eligible policyholders and third‑party claimants (general insurance is typically protected at 90% if the insurer fails). Document every step; do not volunteer remedial work without insurer consent.

If you are FCA‑authorised for insurance distribution or certain investment business, PI is a regulatory reporting line as well as a risk transfer tool. Through the FCA’s RegData platform, you file the Retail Mediation Activities Return (RMAR) and must attest to the adequacy of your PI—limits, exclusions, excess, retro date and any shortfall against the minima set in MIPRU and other sourcebooks. The FCA’s rules set specific minimum limits for insurance distribution (aligned to at least the former IDD levels on a sterling basis) and prescribe maximum excesses relative to income. If your PI is in shortfall—say an exclusion bites your core activity—you must notify the FCA promptly, explain remediation, and may be required to hold additional capital until fixed. Expect your auditor and compliance consultant to probe PI at year‑end; RMAR data inconsistencies are low‑hanging fruit for supervisory queries. Keep endorsements and insurer letters to evidence compliance on demand.

Switching is safe if you guard the dates and the wording. Insist your new policy carries the same retroactive date as your outgoing policy—ideally ‘unlimited’ back to business start. Provide a ‘no known losses’ declaration only if true; disclose any niggling circumstances now to anchor cover. Compare key clauses: jurisdiction/territory, breach of contract cover, IP, cyber carve‑outs, and whether defence costs are inside or in addition. Ask your broker for a ‘no worse terms’ comparison. If you are closing, selling assets, or retiring, price run‑off: for SMEs it is commonly 200–300% of the last annual premium for a six‑year tail, payable once up front; solicitors’ run‑off terms are fixed under the SRA scheme. For architects and engineers who sign deeds, budget for 12 years or at least an option to extend after 6. If cash is tight, consider stepping down limits in run‑off, but beware contractual promises to maintain a stated limit for a period post‑completion.

Treat PI as a cost of sale if clients mandate it. Example: a five‑person consultancy with £600,000 fee income, average contract £60,000, no claims. A £1m any‑one‑claim PI with defence costs in addition might rate at 0.25–0.40% of fees: say £1,800 premium plus 12% IPT (£216), total £2,016. Add cyber at £700, total risk spend £2,716. Bump limit to £2m and add a US client and you may hit £3,500–£4,500 all‑in. Accounting: insurance is exempt from VAT, so there’s no input VAT to reclaim; IPT is not recoverable and is part of the expense. For corporation tax, premiums are generally deductible as a revenue expense wholly and exclusively incurred for the trade. Cashflow: most brokers can arrange 10‑month premium finance around 8–12% APR; run‑off is a one‑off lump sum—budget early. Annual tendering can shave 5–10% in a soft market, but don’t swap defence‑cost terms for pennies.