What is professional indemnity insurance? A plain-English guide

Reviewed by Apex Insurance Brokers · Last reviewed 2026-08-05

Almost every business that gives advice, delivers a professional service or produces work to a specification carries a hidden risk: the possibility that a client says the work was wrong, late, negligent or not what they paid for, and that the mistake cost them money. Professional indemnity insurance exists precisely for that moment. This guide explains what PI actually is, who needs it, how a claim works, what it does and does not cover, and how to arrange a policy that fits the work you do.

What professional indemnity insurance actually covers

PI insurance responds when a third party — usually a client — brings a claim alleging that your professional work caused them a financial loss. Rather than paying out for physical damage or injury (that is what public liability covers), PI deals with the consequences of the intangible thing you sell: your judgement, your advice, your designs or your service.

A typical PI policy will pay for:

• Professional negligence — a mistake, error or omission in the work you carried out.
• Breach of professional duty — failing to exercise the reasonable skill and care expected of your profession.
• Legal defence costs — solicitors, experts and court costs to defend the allegation, even if the claim is ultimately unfounded.
• Compensation or damages you are legally liable to pay a client, up to your policy limit.
• Loss of client documents or data entrusted to you, and the cost of restoring it.
• Defamation, breach of confidentiality and infringement of intellectual property arising from your work, where the wording includes them.

The crucial point is that PI covers defence as well as damages. Many claims never reach a courtroom, and even a claim you would eventually win can cost tens of thousands of pounds to fight. A PI policy meets those costs so that being right does not bankrupt you.

Who needs professional indemnity insurance?

If your business is paid for its expertise rather than a physical product, PI is usually the policy that matters most. It is relevant to a very broad range of professions, including:

• Consultants, management consultants and business advisers
• Accountants, bookkeepers and tax advisers
• Solicitors and other legal professionals
• Architects, engineers, surveyors and other construction professionals
• IT contractors, software developers and technology consultants
• Marketing agencies, designers, copywriters and PR firms
• Financial advisers, mortgage brokers and insurance intermediaries
• Recruitment consultants, HR advisers and training providers
• Medical, health and wellbeing practitioners

For some, PI is not optional. Several UK regulators and professional bodies make it a condition of practising. The Solicitors Regulation Authority, the Royal Institution of Chartered Surveyors (RICS), the Architects Registration Board (ARB) and the Financial Conduct Authority all require their regulated members or firms to hold minimum levels of PI cover. If you belong to a professional body, check its rules first — the mandated limit and wording may exceed what you would otherwise buy.

Even where no regulator compels it, clients increasingly do. Larger organisations and public-sector bodies routinely require suppliers to hold PI at a stated limit, often £1m, £2m or £5m, before they will sign a contract. In practice, "do you need PI?" is frequently answered by the tender document in front of you.

How professional indemnity insurance works: the claims-made basis

PI is almost always written on a claims-made basis, and this is the single most important feature to understand. It means the policy that responds to a claim is the one in force when the claim is made against you — not the policy that was in force when you did the work.

Two practical consequences follow:

1. You must keep cover in place continuously. A mistake made two years ago that surfaces today is only covered if you hold a live PI policy today. Let the policy lapse and the claim falls into a gap, even though you were insured when the work was done.

2. Retroactive dates and run-off cover matter. Your policy carries a retroactive date — work done before it may not be covered. When you stop trading or retire, "run-off" cover keeps you protected against claims that arrive after you have stopped working. Because professional claims can emerge years after a project ends, run-off is not a detail to overlook.

When something goes wrong, the process typically runs like this: you become aware of a claim or a circumstance that might lead to one; you notify your insurer promptly (late notification can prejudice cover); the insurer appoints or approves solicitors; the claim is defended, negotiated or settled; and any damages and defence costs are paid within your limit of indemnity, subject to your excess.

PI versus other business insurance

PI is often confused with public liability or product liability. They protect against different things, and most professional firms need more than one. Here is how they compare.

Under the Employers' Liability (Compulsory Insurance) Act 1969, employers' liability cover is a legal requirement if you have staff. PI is not required by that Act, but as noted above it is frequently required by regulators and by contract.

What professional indemnity insurance does not cover

No policy covers everything, and PI has some standard exclusions you should know about. It generally will not respond to:

• Deliberate, dishonest or fraudulent acts — intentional wrongdoing is not insurable.
• Bodily injury or property damage to third parties — that is the job of public liability.
• Known circumstances — issues or potential claims you were already aware of when you took out or renewed the policy but did not declare.
• Contractual liabilities you assumed voluntarily that go beyond your normal professional duty of care, such as onerous warranties or guarantees.
• Fines and penalties imposed by regulators, which are usually uninsurable.
• Work outside the described business — the cover is defined by the professional activities you declared, so keep your insurer updated if your services change.

Exclusions and definitions vary between insurers, so the wording is what counts. A broker's role is partly to make sure the policy actually matches the work you do — that the "insured activities" are described accurately and that no gap opens between what you sell and what you are covered for.

Choosing your limit of indemnity

The limit of indemnity is the maximum your insurer will pay. Common options are offered at £1m, £2m and £5m, though higher limits are available for larger contracts and higher-risk professions. Choosing well means weighing several factors:

• Contractual and regulatory minimums — whichever is higher sets your floor.
• The scale of the losses your advice could realistically cause — a small design error on a major project can carry a very large financial consequence.
• Whether the limit is "any one claim" or "in the aggregate" — an aggregate limit is shared across all claims in the policy year, so it can be exhausted more quickly.
• Whether defence costs sit inside or on top of the limit — costs eroding the limit reduce what is left for damages.

These distinctions have a real effect on how much protection you actually have, and they are easy to miss when comparing prices alone. It is worth getting a properly structured PI quote rather than buying on headline premium.

How to arrange professional indemnity insurance

Arranging PI is straightforward when you approach it in order:

1. Describe your business accurately. List the professional services you provide, your fee income and your largest contracts. Accuracy here protects your cover later.
2. Check any mandatory requirements. Confirm the minimum limit and any wording your regulator or key clients demand.
3. Choose your limit and excess. Balance the protection you need against the premium and the excess you are comfortable carrying.
4. Disclose known circumstances. Tell your insurer about anything that might give rise to a claim — failing to do so can void the cover.
5. Review at every renewal. As your work, income and client base change, your PI should keep pace, and you should keep the cover continuous so the claims-made basis never leaves a gap.

Because PI wordings differ so much between insurers, and because the consequences of a gap are severe, most professional firms arrange it through a broker who can match the policy to the work and handle a claim if one arises.

Common questions

Is professional indemnity insurance a legal requirement?
Not by general statute. However, it is a mandatory condition of practice for many regulated professions — including solicitors, chartered surveyors, architects and FCA-authorised firms — and is very commonly required by client contracts. For most professional businesses it is effectively unavoidable in practice.

What is the difference between PI and public liability?
Professional indemnity covers financial loss caused by your advice, service or work. Public liability covers physical injury to third parties or damage to their property. They protect against different risks, and many professional firms sensibly hold both.

Do I still need PI after I stop trading?
Often, yes. Because PI is claims-made, a claim can arrive years after a project ends. Run-off cover keeps you protected against those late claims once you have stopped working, retired or sold the business, and is worth arranging rather than simply cancelling the policy.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for your policy wording.