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Professional Indemnity (PI) Insurance

The main characteristics of PI insurance cover will vary to reflect the needs of particular professions.

Overview

Author(s): John K Morgan and Pamela Hanrahan

PI insurance provides financial resources to respond to claims against a professional in respect of advice or services provided to clients.

Regulators, professional associations and professionals have overlapping but different interests in respect of PI insurance.

Regulators may be concerned with the public interest and protection of consumers to ensure that all professionals of a particular class have resources available to meet claims by clients. This interest is heightened where the entry to the profession is restricted and only those with professional accreditation can provide advice and other services in a particular field.

Professional associations may be particularly concerned with protecting their own reputation and the reputation of their members. This is closely aligned with ensuring that users of the professional services with valid claims are compensated for any loss they suffer. These associations may themselves have a delegated regulatory function under legislation or require that members hold PI insurance as a requirement of membership. They may also facilitate the provision of appropriate PI insurance to their members by operating mutual insurers or similar schemes or by arrangements with insurance brokers and underwriters. In this way, the association can better frame the cover to suit their members and provide feedback on risk management.

Individual professionals or firms have an interest in protecting their reputation, capital and cash flows and this interest may lead them to use PI insurance to protect themselves and their clients from professional failures. Also, they may be required by regulation (including participation in professional standards schemes) or by their professional association to hold PI insurance meeting particular requirements.

This article considers some of the main issues and characteristics of PI insurance available to professional advisers and aims to assist in the important decisions that regulators, professional associations and users may need to make in selecting an appropriate PI policy.