PI insurance for founding partners of UK professional firms
Two or more founders setting up a practice have a short window in which the professional indemnity decisions taken now shape the firm's exposure for years. This guide takes each structural question in turn, in the order it typically arrives.
LLP versus incorporated — the PI angle
The choice between a limited liability partnership under the Limited Liability Partnerships Act 2000 and a limited company under the Companies Act 2006 is often made on tax and governance grounds. The PI position is a separate lens and one worth applying before the members' agreement is drafted.
An LLP places the practice on a members' footing. Members share in profits, hold capital accounts and can be called on for further capital in ways a shareholder ordinarily cannot. The regulator normally treats the practice, not the wrapper, as the insured; the SRA Minimum Terms and Conditions, ICAEW Bye-law 61 and RICS Rules of Conduct Rule 9 all attach to the firm rather than to the corporate form. Underwriters are typically comfortable with either structure but read the wording carefully to see who is captured in the definition of insured.
A limited company brings share capital, a board and a cleaner distinction between owners and directors. For a professional firm, that clarity can help with succession because ownership can pass by share transfer rather than by admission of a new member. A traditional partnership under the Partnership Act 1890 remains lawful but rarely chosen for new professional firms because personal liability sits with each partner without the LLP shield.
The practical question at set-up is whether the members or shareholders have understood how their chosen wrapper interacts with the PI wording, and whether any regulator-specific successor practice provision is properly documented.
Aggregate limit sizing for a growing practice
Regulated professions differ in how they express the limit. The SRA MTC mandates any-one-claim cover with a minimum of £2m or £3m depending on structure. ICAEW's Bye-law 61 uses a 2.5 times fee income formula. RICS applies a turnover-band scale. ARB Standard 8 sets an adequacy standard without a fixed number. For firms outside a mandated regime, the founders choose the limit and basis.
For an intentionally growing book, the sizing conversation has two dimensions. The first is whether the limit is on an any-one-claim or aggregate basis. Aggregate limits cap the insurer's total exposure across the policy year; a single significant claim can erode the remaining cover for the balance of the period. Any-one-claim structures reset for each notification but are typically more expensive and may not be available for every discipline.
The second dimension is projected exposure. A firm intending to double fee income over three years is not insuring last year's book — it is insuring the book that will be in force when notifications land, which for professional work is often several years after the underlying engagement. Sizing to the founding-year turnover may leave the firm under-insured by year three.
A pragmatic pattern is to set a limit that accommodates the medium-term plan and to review it formally at each renewal against actual fee growth and claims experience.
Run-off provision at the point of set-up
Run-off cover is the tail of protection that responds to claims notified after the practice has ceased. Most founders think about it at exit. The considered position is to think about it at set-up.
The regulator-mandated tails differ. The SRA MTC requires six years of run-off for solicitors' practices that cease without a successor. ICAEW typically requires two years for accountants, though many firms opt for six. RICS requires six years for surveyors. ARB Standard 8 requires architects to maintain adequate run-off but does not fix a period. For firms outside these regimes, the Limitation Act 1980 sets the practical horizon — commonly six years from breach for contract claims and up to fifteen years for latent damage under the Latent Damage Act 1986.
The reason to think about run-off at set-up is funding. Run-off is normally paid as a single premium at cessation, often equal to two to three times the annual PI premium. A firm that has not built that eventual liability into its capital planning or its members' agreement may find the founders arguing about who pays it at the point they are least aligned. Building a run-off reserve or a run-off funding clause into the members' agreement removes that friction before it starts.
Capital calls and the PI overlap in an LLP
The Limited Liability Partnerships Act 2000 gives LLPs considerable flexibility in how members contribute and withdraw capital. Members' agreements commonly provide for calls to be made where the LLP faces a liability the current reserves cannot meet. That mechanic sits uncomfortably close to the PI position when a claim exceeds the self-insured retention or the policy limit.
Insurers typically ask about capital structure at underwriting. A firm carrying a £25,000 self-insured retention on a modest capital base may have to make a call on members to meet a single claim. That call, and the possible partial withdrawal of members it can prompt, is a solvency concern the underwriter will price for.
The practical steps at set-up are three. First, size the retention against the capital base rather than against the annual premium. Second, draft the members' agreement so that calls to fund an insured loss are a defined mechanism, not an ad-hoc discussion. Third, disclose the mechanism to insurers as part of the Insurance Act 2015 duty of fair presentation — the material fact is not the capital number in isolation but the way the firm intends to fund uninsured exposures.
Named-partner cover and successor practice
The default position is that the firm is the insured and the members are covered under the definition of insured while working for the firm. Named-partner cover becomes a live question in three situations.
The first is where an individual partner sits on boards or trusts outside the practice. That role may fall outside the firm's PI and may need to be insured separately, or endorsed onto the policy as a specified additional insured activity. The second is where a partner is likely to be sued personally — a common feature of long-tail advisory work where the claimant names the individual alongside the firm. The third is at succession, where a departing partner or a receiving firm needs clarity on which insurer picks up what.
Successor practice is a defined concept in most regulated regimes. The SRA MTC includes explicit successor practice language; ICAEW, RICS and ARB have their own analogues. Where one firm succeeds another, the successor's PI normally picks up the prior firm's liabilities, avoiding the need for run-off. Where there is no successor, run-off applies. The distinction matters commercially because a firm being sold or merged is more valuable if the buyer inherits a clean successor chain rather than a run-off liability.
First-year underwriting — what insurers ask
The first PI proposal a founding firm submits is typically longer than the renewal form it will complete in subsequent years. The Insurance Act 2015 duty of fair presentation applies, and the firm has less claims history and less trading data to point to. Underwriters compensate by asking more questions about the founders.
The questions commonly include: CVs and practising certificates for each founder; the split of fee income by discipline in the founding year; the client base by sector; average and maximum engagement size; any prior claims or notifications made against the founders while at previous firms; the members' agreement or articles; and the professional regulator's authorisation confirmation. Under ICOBS 4.4, the broker will confirm the basis of remuneration on request or where material.
The founders' claims history at previous firms is often the single most influential factor. A clean history is a strong signal. A history of notified but unresolved matters is not a barrier but is a fact insurers weigh. The most common source of avoidable friction at first-year underwriting is undisclosed prior notifications; disclosure sits at the heart of the Insurance Act duty and is not something to leave for the follow-up call.
Reviewing at the first renewal
The first renewal is the founders' first opportunity to test the assumptions taken at set-up. Fee income, discipline mix, client base and claims experience will all have moved from the projections used at inception. Insurers re-underwrite in full at first renewal rather than treating it as a rolling exercise.
A useful pre-renewal exercise is to compare each assumption in the first-year proposal against actual data: projected fees against booked fees; projected discipline mix against the invoice ledger; projected client base against the client list; and any notifications made in the year. Where the actual differs materially from the projected, the founders can present the story to the market rather than have it inferred from the numbers.
The limit and basis should be reviewed against the same measure. A firm that has grown faster than expected may need a higher aggregate; a firm that has grown into higher-risk work may need a different wording rather than the same wording at a higher limit.
Common pitfalls and red flags
- Sizing the aggregate limit to the founding-year fee income rather than to the projected exposure when claims are likely to be notified.
- Leaving run-off out of the members' agreement and discovering the funding gap only at cessation.
- Assuming the corporate wrapper (LLP or company) determines who is insured — the wording does, and the wording turns on the definition of insured.
- Overlooking outside board or trustee roles held by individual partners.
- Failing to disclose prior notifications from previous firms at first-year underwriting.
- Setting a self-insured retention that is comfortable relative to the premium but uncomfortable relative to the capital base.
- Treating the first renewal as an administrative event rather than a full re-underwrite.
- Assuming successor practice provisions apply automatically without checking the regulator-specific wording.
Frequently asked questions
How does LLP versus limited company change the PI conversation?
The regulated obligation to hold PI usually attaches to the practice, not the corporate wrapper. An LLP tends to expose the members to capital call mechanics and to succession questions that a company structure resolves through shareholding. Underwriters typically read both structures on the same rating table, but the wording, the definition of insured and the successor practice mechanics can differ.
Should we size the aggregate limit for today's book or for three years out?
The aggregate limit needs to be adequate for the year in which claims are notified, not the year the work was done. A firm expecting to double fee income over three years may want to size to the projected exposure rather than the founding-year workload.
When must we think about run-off?
The right point is at set-up, not at exit. Regulator run-off requirements (six years for solicitors under the SRA MTC, two years for many ICAEW firms, six years for RICS) apply from the day the practice ceases. Planning for the eventual funding of that liability from the outset is part of a founder's fiduciary discipline.
What if one founder leaves in year two?
The departing partner's exposure for work done while a member of the firm remains covered by the firm's ongoing PI, provided the policy is renewed on a continuous basis. Individual named cover, indemnities in the members' agreement and successor practice provisions all interact here.
How is the aggregate limit different from any-one-claim?
An aggregate limit is the total the insurer will pay in the policy year across all claims. An any-one-claim structure resets after each notification. Regulated professions often mandate a specific basis; the SRA MTC, for example, requires any-one-claim for solicitors.
Do all partners need to be named on the policy?
The insured is normally the firm, with members automatically covered under the definition of insured. Named cover for individual partners is more relevant where the individual may be sued personally, such as in an appointment as trustee or where a non-executive role sits outside the practice.
Does the capital contribution structure affect our PI?
Indirectly. Insurers often ask how members' capital is contributed and whether calls can be made mid-year. A thinly capitalised firm carrying a heavy self-insured retention can create a solvency risk that underwriters price for.
What documents will insurers ask for?
Typically the members' agreement or articles, CVs for the founders, the projected fee split by discipline, any complaints or claims history from previous firms, evidence of regulatory approval and the practising certificates of the partners.
Founding a firm this year?
Talk to a director or a named colleague about how the PI decisions fit alongside your members' agreement and your growth plan.
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