Professional Indemnity Insurance ~ Requests for higher Limits of Indemnity
It is not unusual for Consultants to be faced with a request for a higher limit of indemnity. The limit required may be much higher than the general limit of indemnity usually maintained by the Consultant for their activities. Requests for such higher limits can also be exacerbated by the low level of fee the Consultant may receive for the services, relative to the limit of indemnity being requested by the client. The following sets out some of the common queries relating to higher limits of indemnity.
Do I have to increase cover for all work or can cover be increased on a project specific basis?
It is worth being aware that some Insurers may be prepared to provide an increased limit of indemnity on a project, client or work type specific basis. In some cases, this may provide you with a more cost effective solution to the required increase. However, due to insurers minimum premium levels, there may be no cost benefit to increasing your cover in this way and the cost of increasing cover for all work could be the same as the cost of increasing cover on a project specific basis. Your broker will be able to advise you on what options may be available to you.
Can I pay a one-off premium for the increased limit of indemnity?
It is extremely important to remember that any increase in your limit of indemnity will not just incur a one-off premium for the current policy period. Professional Indemnity insurance (PII) is a ‘claims made’ form of insurance and cover will need to be renewed, to include the increased limit, on an annual basis to cover future claims. When increasing your limit of indemnity, consideration should therefore be given to the long- term costs, as the requirement to maintain a higher limit is likely to run for six or twelve years following completion of your services. Your insurers are likely to require an additional premium for the top-up arrangement long after the fees for the project have been received and these long-term additional costs should be given consideration in your fee bid.
My contract requires me to maintain the increased limit of indemnity for 12 years following completion of my services, how much will this cost?
It is impossible to predict the future cost of PII premiums as the cost of insurance can fluctuate from one year to the next. Premiums will be affected by claims experience and future capacity in the insurance market and allowance should be made for possible future premium increases when looking at the long-term potential costs of maintaining higher limits of indemnity.
Although it will not absolve you from any liability to the client, any contractual requirement to maintain PII should be made subject to its continuing availability in the UK market at commercially reasonable rates.
The above is a general overview only and for specific advice on increasing your limit of indemnity please contact your professional indemnity insurance broker.
Griffiths & Armour Professional Risks