Professional indemnity for advice businesses

Aug 29
3 min read

Updated: 3 days ago

Introduction

A consultant recommends a course of action. The client follows it, something goes wrong, and they claim the advice caused a substantial loss. The consultant has public liability cover, which is irrelevant here, and nothing else.

Businesses that sell judgement rather than goods carry a different risk from those that sell products. Nobody is injured and nothing is physically damaged; the loss is financial and it arises from what was recommended. Professional indemnity is the cover for that, and a large number of advice businesses trade without it because nobody has ever explained the exposure.

1. Professional indemnity for advice businesses covers financial loss from your work

The distinction from other cover.

It responds to claims that your advice, design, specification or professional service was negligent and caused the client a loss. Public liability covers injury and property damage, which is a different situation entirely.

2. Recognise whether you are in this category

Wider than the traditional professions.

Consultants, agencies, designers, IT providers, trainers, bookkeepers, architects, recruiters and anyone specifying or recommending. If a client could act on what you told them and lose money, this applies to you.

3. Understand that claims follow the work by years

The feature that shapes everything.

A decision taken this year may not produce a loss until several years later. That gap is why the structure of these policies is unusual and why lapsing cover is more dangerous than it appears.

4. Know that cover is usually claims-made

The most important technical point.

Most professional indemnity policies respond to claims made while the policy is live, not to work done while it was live. A policy that has lapsed will generally not cover a claim about work carried out when it was in force.

5. Maintain run-off cover when you stop

The consequence of the previous point.

Ceasing to trade, retiring or selling does not end the exposure, and without run-off cover there is nothing to respond to a later claim. This is a real cost that should be planned for rather than discovered.

6. Set the limit against the size of the loss, not your fee

A common miscalculation.

A modest fee can lead to a claim many times larger, because the loss relates to the client's position rather than to what you charged. Limits should be set against plausible client losses.

7. Check what your contracts require

Increasingly specified.

Client contracts, particularly with larger organisations and public bodies, frequently require a stated level. Some also contain liability caps that only work if you have the cover to support the position.

8. Manage the risk as well as insuring it

Cheaper than claiming.

Written scope, clear terms, recorded advice, documented client decisions and honest limitations on what you are advising about. Most claims in advice businesses turn on what was agreed and what the client understood.

9. Notify circumstances, not just claims

A policy condition people miss.

These policies typically require notification of circumstances that might give rise to a claim, not only of formal claims. Failing to notify an issue you knew about can leave a later claim uncovered.

Do not assume you are too small to be sued. Claims are brought by clients who have lost money, and the size of the adviser is largely irrelevant to whether that happens. Sole practitioners and small agencies face exactly this exposure and are the least likely to have arranged for it.

Conclusion

Recognise that selling judgement creates a financial-loss exposure other policies do not address.

Establish whether your work falls into this category, understand that claims arrive years after the work, know that cover is usually claims-made rather than tied to when the work was done, arrange run-off cover when you stop trading, set limits against plausible client losses rather than your fees, check what client contracts require, reduce the risk through written scope and recorded advice, notify circumstances as well as claims, and do not assume size protects you.