Tony O’Hagan, Business Insurance Underwriter, Hiscox
Should you buy professional indemnity, public liability, or management liability insurance? Or all three? Find out what each kind of business insurance policy covers and when you might need it.
No business owner intends to make mistakes, spill coffee on someone’s expensive new laptop, or have run-ins with the authorities. But to paraphrase an old adage, in business you should expect the best and prepare for the worst. And insurance can literally be your salvation should you ever be faced with the latter.
Trouble is, understanding what different types of business insurance actually cover isn’t as easy as you’d think.
For instance, a 2019 survey of 500 business owners found 96% couldn’t explain what the ‘indemnity’ in ‘professional indemnity insurance’ meant. Worse, this led 70% to believe it wasn’t suitable for them.
With this in mind, we’ve put together a brief explainer of what three popular types of business insurance — professional indemnity, public liability, and management liability insurance — are, what they cover, and when your business might need them.
Here’s the lowdown.
What is professional indemnity insurance?
Professional indemnity insurance protects you if a client loses money — or claims they’ve lost money — because you’ve made a mistake on the job.
Let’s say you run an accounting firm.
It’s peak tax season, and an overworked junior misreads your client’s information and puts the wrong figures on their tax return. This triggers an investigation, and HMRC slaps your client with a hefty fine.
If your client decided to sue and you had no insurance, you’d be on the hook for all the costs — that’s court-ordered damages or compensation, court fees, and solicitor’s fees.
But if you have professional indemnity insurance, your policy would cover the cost of hiring a solicitor to defend you, court fees, and court-ordered damages. Hiscox covers legal costs and compensation up to £10 million.
Like our harried junior accountant’s mistake, most professional indemnity claims tend to be the result of negligence — a structural engineer getting their calculations wrong, for instance, or a doctor misdiagnosing an illness. But a good professional insurance policy will also cover:
- Confidentiality breaches, for example if you cc someone you shouldn’t on a sensitive email
- Intellectual property breaches. This could happen if your graphic designer uses images without their owner’s permission. Or if someone claims your business name is too similar to theirs.
Loss of documents, for example because a staff member forgets a client file on the train
You may also be able to purchase add-ons that extend your cover.
Common extensions include defamation — handy if a salesperson makes inaccurate comments about a competitor to a prospect, and the competitor finds out — and breach of contract, which covers issues like missed deadlines. Hiscox offers defamation as standard, which means you don’t have to pay extra for it. Specialised professional indemnity insurance policies, such as those designed for IT and media businesses, also provide breach of contract cover as standard.
Who is professional indemnity insurance for?
Unlike employers’ liability insurance, which is compulsory (though there are some exceptions), professional indemnity insurance isn’t required by law. That said, your professional body may require it, as may some clients, particularly if it’s a high-value contract.
But even if you’re not obliged to buy it, professional indemnity insurance is still worth considering if:
- You provide professional services or advice and clients could challenge their quality or validity
- Your job involves creating plans, designs, or other types of intellectual property
- Clients trust you with sensitive information about their business
It only takes one small oversight or disagreement to expose you to liability. Professional indemnity insurance gives you the peace of mind of knowing you have legal and financial support should your client pursue the matter.
What is public liability insurance?
Public liability insurance covers you if someone slips, trips, or falls, gets sick, or suffers property damage because of you (or claims it’s your fault).
While professional indemnity policies can cover property damage and physical harm, these have to be the direct result of a professional mistake, such as a surgeon making a mistake during an operation. They don’t cover accidents that aren’t a direct result of the service you’ve performed for your client.
That’s where public liability comes in.
Let’s say a client slips at your office and sues you for permanently injuring their back. This accident didn’t happen because of something you did on the job. In fact, you were having a coffee and a natter at the time, so professional indemnity insurance wouldn’t cover your legal fees and court-awarded damages. However, your public liability policy would.
Similarly, if you were at a client’s office and accidentally broke an expensive piece of equipment, your professional indemnity policy wouldn’t cover the cost of replacing it, but your public liability policy would.
With this in mind, it’s worth buying public liability cover if you regularly:
- See clients at your office
- Visit client premises
You can buy public liability cover on its own, or add it to your professional indemnity policy or other insurance for an additional fee.
At Hiscox, we offer public and products liability as standard. Products liability covers you if someone gets hurt or their property is damaged by a product you’ve sold them, even if you’re not the manufacturer. This is good to have if you sell tech hardware, household appliances, or other goods.
What is management liability insurance?
Professional indemnity and public liability insurance cover mistakes and accidents at work. But what if the professional spills over into the personal?
As a business owner or business leader, you’re ultimately responsible for your business’ actions. The upshot is that you can get sued in your personal capacity for your business’ mistakes, including corporate crimes. And this means your savings, your home, and even your freedom could be at risk.
That’s where management liability insurance kicks in. It covers court-awarded damages and legal fees you’re on the hook for if you’re personally named in a lawsuit by:
- An unhappy customer or staff member
- Public authorities such as HMRC or the Health and Safety Executive
- The police or Serious Fraud Office
In business, fortune favours the brave. But...
As humans, we’re wired to think bad things won’t happen to us (the phenomenon even has a name — optimism bias). But it only takes one small mistake to find yourself facing the prospect of a million-pound payout.
Picking the right business insurance won’t stop you and your staff from making mistakes (or clients from suing you). But it’ll give your business the resources it needs to weather the storm.
And isn’t that worth a small monthly fee?
At Hiscox, we’re the insurer of choice for over 300,000 UK businesses. Learn how Hiscox can help you keep your business safe should things go wrong by speaking to one of our Insurance Experts on 0800 781 3046 or get an online quote in minutes here. Revolut customers benefit from a 15% discount on all Hiscox Business Insurance products.
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