Professional indemnity insurance
What professional indemnity covers when a mistake in your advice or work costs a client money, what it does not cover, and why the claim date decides which policy pays.
Professional indemnity insurance can cover claims for financial loss caused by mistakes in your professional advice or services. It can also help you respond to unfounded claims. It is a separate policy, because ordinary liability insurance usually only applies when a person is injured or property is damaged. In Sweden it is called konsultansvarsförsäkring or professionsansvar.
How professional indemnity works
- The client claims compensation. The claim can arrive as an email, a letter from a lawyer or a summons. The policy terms usually say you must not admit liability or promise compensation without the insurer's approval.
- You report the claim. Do it as soon as you know about it, and send the contract, the email thread and what you delivered.
- The insurer investigates. It assesses whether you are liable and how much of the client's loss can be proven.
- The claim is assessed. If the claim is covered, the insurer may pay compensation, subject to the deductible and policy limits. If the claim is unfounded, the insurer negotiates with the client or defends you in a dispute.
The policy you have when the claim arrives is the one that applies
Professional indemnity usually covers claims made while the policy is running, not mistakes made while it is running. If you make a mistake today and the client gets in touch two years from now, the policy you have then is the one that pays.
Two things are worth knowing:
- If you close the business. If you cancel the policy, a claim that arrives afterwards can be left without cover.
- The retroactive date. Many policies only cover mistakes made after a certain date, even if the claim arrives while the policy is running.
What it covers
The client's financial loss
The insurance may cover ren förmögenhetsskada, a pure financial loss that arises without any person or property being harmed. It could be revenue the client missed out on, extra costs for putting the mistake right on the client's side, or a lost contract.
Investigation and negotiation
The insurer finds out what happened, assesses whether you are liable and negotiates with the client. That applies even when the claim turns out to be unfounded.
The cost of a dispute
If the dispute goes to court or arbitration, the insurance usually pays the costs of lawyers and proceedings, up to an amount set in the policy terms.
Example: The tender that came in late. A procurement consultant helps a construction company write a bid for a public contract and has agreed to submit it. The deadline is missed by an hour, and the bid is not considered. The construction company believes it would have won the contract and claims compensation for the lost profit. Nobody was hurt and nothing was broken, so it is a pure financial loss. The insurer investigates whether the consultant is liable and how much of the loss can be proven, then negotiates with the construction company.
What is not usually covered
- Injury to people and damage to property. Those belong to general liability in liability insurance.
- Liability you have taken on by contract beyond what the law imposes, such as a penalty clause or a guarantee of a particular result.
- The cost of redoing your own work. The insurance pays the client's loss, not your time spent correcting the delivery.
- Claims you knew about before the policy started.
- Damage you caused on purpose.
Exactly what applies to your company is set out in the policy terms and in your försäkringsbrev (the policy document).
Who needs professional indemnity?
It suits companies that sell expertise, advice or work that the client bases decisions or operations on. It can be relevant to consultants and IT consultants, and also among accounting firms, advertising and communications agencies, architects, recruiters and project managers.
Often it is the client who requires it. A framework agreement or a public procurement can require you to hold professional indemnity with a certain limit before the job starts. In some professions, such as auditors and estate agents, Swedish law requires liability insurance. There is more on when insurance is a requirement in the guide is business insurance compulsory.
How much does it cost?
The premium mainly depends on:
- what the company does and how large a loss a mistake could cause the client,
- turnover or fees,
- the limit you choose,
- the deductible,
- whether the company has had claims before.
How these factors interact with the rest of the company's cover is explained in the guide what does business insurance cost.
Frequently asked questions
Is professional indemnity included in business insurance?
Usually not. Combined business insurance includes general liability, which applies when a person is injured or property is damaged. Professional indemnity is taken out as an add-on or as a separate policy. The guide on what business insurance includes goes through the usual add-ons.
Are professional indemnity and professional liability the same thing?
Usually they mean the same kind of cover. Insurers use different names, sometimes with terms adapted to a particular industry, such as IT or architecture. What counts is what the terms cover, not what the policy is called.
What limit do I need?
Start with your client contracts. If a client requires a certain amount, that is your minimum. Also make sure the limitation of liability in the contract is not higher than the limit of the insurance, or the company pays the difference itself.
What happens to old jobs if I switch insurer?
Because the policy you hold when the claim arrives is usually the one that applies, the new policy has to handle claims about older jobs, but only if it covers mistakes that far back. Check that the new försäkringsbrev has the same retroactive date as the old one, or older jobs may fall outside the cover.
