Watching out for Professional Indemnity Insurance pitfalls that can cost thousands

Trying to keep costs down by switching professional indemnity insurers can leave consultants and small advice driven businesses in a world of financial pain.

More and more, insurers are selling their products on value for money, yet not all policies offer the same cover for the same price.Professional indemnity insurance is different from other types of business insurance.

Buildings, contents, motor or business interruption are often determined by your type of trade, crime in your geographical location and past claims history but cover future events that may happen.

Professional indemnity – often called PI for short – is a ‘claims made’ policy that covers past events that have already happened.

Although insurers will take your claims history in to account, it’s how the policy document is worded that makes the difference.

That’s because a claim against PI cover may take years to work through the system and the insurer you have now may have worded the current policy to discount claims that were covered in the year the incident leading to the claim took place.

For instance, banks advised customers to buy personal protection insurance (PPI) several years before the current claims were registered.

So a financial adviser, structural engineer or accountant may have given advice some years ago that is only surfacing as a claim now.

The PI insurer three or four years ago that was ditched by the adviser may have accepted the claim, but the current insurer may have an exclusion for that type of claim now.

For the consultants, that means the claim is may not be covered by PI and they can’t go back to the insurer who did include the cover to settle the bill.

Many PI claims are settled out of court – but even then the potential bill can run in to tens of thousands.

Personal indemnity is a minefield – especially for property related advisors who have had a hard time over recent years, like surveyors who are taken to task by lenders for over valuing homes in the boom times that were later repossessed and sold at a fraction of their estimation

If you are with a PI insurer and want to change, make sure you read the policy in detail to ensure your business activities are covered in full – for now and up to six years ago.

The six years is a key figure because many civil court claims have a limitation on proceedings that does not allow a claim over a certain time limit – except criminal cases which work to different rules.

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