Today we look at an often-overlooked area of cover – Professional Indemnity Insurance. As a start, we will cover some of the most frequently asked questions that we get asked as a broker by our clients.
What is Professional Indemnity Insurance?
Professional Indemnity Insurance provides cover for legal costs and expenses incurred in the event you are held liable in court, having provided inadequate advice, services, or designs that cause your client to lose money. A professional indemnity (PI) insurance policy helps to offset a large potential financial risk for businesses that provide any type of consultative advice to their clients.
Even relatively minor cases of professional indemnity can exceed seven figures very swiftly and therefore you would imagine that it would be mandatory to have cover for such huge costs? Unfortunately not. It is not a legal requirement to have a professional indemnity policy in place, however, there are many situations in which you should have a policy in place.
Why do I need Professional Indemnity Insurance Cover?
There are a number of reasons it may be beneficial to have professional indemnity insurance in place. Just a few of these are highlighted below:
- Let’s say you had a bad day, you made a mistake (we are all human after all) and that mistake ended up in a net loss of AED 1 million dirhams for your client. Would you be happy covering those damages out of your own pocket? If the answer to this is NO, then you need PI Cover. If the answer is yes, then you probably need to keep reading…
- Your clients may insist upon it. If you are contracting services, you as the vendor may be contractually required to have a certain level of PI cover in place. This range depends on the activity and scope of the project and is sometimes. It’s always advisable to set this up in anticipation of your business for the coming year. We see a large number of last-minute requests for PI cover from companies who are already within the tender process, only to realise that they don’t meet their clients’ requirements. Inevitably, this delays the tender submission and, in some cases, makes it unviable. It takes on average 2-3 weeks to put a PI policy in place, this can be even longer depending on the complexity of the cover required.
Is Public Liability Insurance the same as Professional Indemnity Insurance?
No. Public Liability cover is tailored for claims by members of the public for injury, illness, or damage. Professional Indemnity insurance covers losses by clients for professional mistakes or negligent acts/advice.
Global Professional Indemnity Insurance vs Local UAE Policies
Our head office in Europe/USA has a global PI policy, we don’t need a local UAE policy, right? The answer here depends. As Professional Indemnity cover is not mandatory in the UAE at present, a global policy may have the ability to cover multiple locations within the same line of business. However, this isn’t without risks and since 2020 we have seen a steady increase in international companies choosing to issue local UAE PI cover and moving away from their global policies. For most, the reason for doing so is:
- Increased cost optimisation
- Clarity of the cover and what exactly it will cover
- Increased scrutiny from contractors ensures that the PI policy held by their vendors is suitable for the UAE market.
Is PI Cover Expensive?
The idea of what is classed as expensive will naturally differ from person to person, and premiums are hugely dependent on the level of cover and the line of business. As stated above, even low-level grievances are likely to cross the seven-figure barrier before a court has even heard a case. I’ve never spoken to anyone who thinks that the cost of their PI policy is NOT good value for money in the event of a claim.
How do I put cover in place?