How Much Does Legal Malpractice Insurance Cost – Professional indemnity insurance can be one of the largest commercial insurance costs a business can incur. Professionals of all persuasions can be quite surprised at how hard it is to find cheap PI insurance quotes, so here’s some information on professional indemnity costs to help you spot a good deal when you find one.
Analysis shows that the cost of professional indemnity insurance in the UK ranges from £45 to thousands of pounds a year, depending on occupation and other factors. These prices reflect the rates for a small business; the larger the company (i.e. the more employees and the higher the turnover and contract size) and the riskier the job, the higher the rates.
How Much Does Legal Malpractice Insurance Cost
As you can see in the table below, profession has a huge impact on PI rates, with some professions costing 25 times more than other professions to insure, or even more. For example, the problem of fire-prone coatings could mean that an architectural, construction or surveying firm has to pay a small fortune to insure itself in today’s market – potentially tens of thousands of pounds a year in certain cases. Or they may not even be able to get a full policy covering the siding.
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Professional indemnity insurance is priced according to the specific risks of your business. The structure of your business can even make a difference. For example, liability insurance from a limited liability company may cost more than if you are self-employed. Let’s see what factors affect the price of PI insurance.
Professional indemnity quotes vary widely from company to company, as insurance companies set their prices based on the perceived risk presented by each individual company. All other things being equal, “riskier” companies will pay higher premiums than companies considered less risky. Professions like architects can pay a lot more because a mistake can have significant financial repercussions. For example, an architect’s error could mean that a building has to be partially demolished and then rebuilt at great expense.
Coverage level. Higher insurance limits are generally subject to a higher insurance rate. So the more coverage you need, the higher your premium. That said, additional coverage tends to be less expensive. For example, the first £100,000 of cover is usually cheaper than the next £100,000 of cover, and so on.
Size of your business. Insurers want to know your annual turnover, as well as the size of your largest contracts. This information is critical in determining your PI premium, as turnover and policy size indicate the level of risk the insurer is assuming.
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Line of work. Some industries are more prone to costly business mistakes than others. For example, architects have been known to pay higher PI rates because one mistake on a large construction project can cost thousands or millions of pounds to correct.
Location. Where you operate can also play a role in your premiums, although to a lesser extent than with auto or home insurance quotes. The legal basis of your contracts is particularly important, because if you are sued in another jurisdiction, the insurer will have to pay experts, for example, in American law to defend you. It will cost much more.
Company structure. Even the structure of your business can affect your business insurance premiums. We noticed that individual traders tend to pay the least, while LLCs with more than one director tend to pay the most.
Claims history. Companies that have made a claim in the last few years are more likely to pay a higher rate than a company with no claims in their history.
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Number of employees. Businesses with more employees typically pay more for IP insurance; the reasoning is that more people can be harder to manage, which makes mistakes more likely in a large company.
In addition, cleanliness and transparency count for a lot in filling out forms. Be sure to fill them in as completely as possible. Don’t be afraid to call the insurer to ask for more information as they will count this in your favor. Remember that this insurance is meant to protect you from mistakes, so making mistakes on the form you send to the insurance company is a bad look. Being open and honest will also earn you points – hiding business activity will only bite you later in the claims stage.
Many factors affect risk and perceived risk, which then contribute to premium. These pieces of information about your business are then fed into internal pricing models that translate this risk into a quote.
There are two possibilities to transform the risk calculations into an estimate. Either your policy is fully automatically underwritten and priced online, in which case your premium is relatively fixed and you may have some wiggle room back and forth if you call, OR your quote will be passed on to an underwriter who will do a full review with you, then you “manually” produce a policy with a bespoke price and individually selected terms and conditions.
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In the second case, it can mean either much cheaper or much more expensive than your initial quote online, but with a good underwriter, your final policy will actually be the right one for you.
Trick. Insurance underwriters perform their own internal risk calculations, so you may receive very different quotes from different insurance companies for comparable coverage (e.g. similar insurance limits). This is why it is so important to compare quotes from multiple vendors.
If you are in an industry like architecture, construction, or surveying that is proving problematic in getting affordable PII quotes, there is something you can do about it. If an insurer refuses to cover something, it’s always worth asking, “Can they cover it for a sub-limit of the main policy limit?” But if you get coverage with a lower sub-limit for certain activities, make sure your customers know about it.
You can also ask if customers won’t hold you accountable for certain things. Where possible, engage legal counsel to discuss the best way you and your client can mitigate liability outside of an IP policy, in cases where certain crucial aspects of your services cannot be covered.
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If so, it’s still worth getting a PI policy, but you may be able to push the insurer to lower their premiums since a key part of the cover is reduced or missing, so don’t don’t be afraid to ask.
If your business activities are deemed “riskier” (for example, your management consulting business is involved in accounting or tax consulting, investments or financial services, mergers and acquisitions, insolvencies, liquidations, receivership or turnaround management), you’ll not only pay a higher premium, but you may have a harder time finding coverage because fewer insurers will be willing to take on the risk.
For example, we conducted tests with a large UK corporate insurer and found that they would provide online quotes for an accountant who carries out audit, general accounting, payroll and personal tax consultancy work. , but would not offer online quotes for an accountant doing secretarial or stock listing work. This is just one example, but it shows that underwriters may be less inclined to cover “riskier” work, regardless of the premium.
Professional indemnity insurance covers compensation for a client’s financial loss due to negligence, which can be a significant sum of money in some situations. Consequently, PI premiums can be expensive enough to reflect potentially large payments from insurers.
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Furthermore, quotes can have as much to do with an insurer’s internal risk management as they do with a sole proprietorship seeking coverage. For example, an insurer might decide that it has too much exposure to a particular sector, so that its risk appetite for writing new business would be quite low. As a result, the insurer’s quotes for new business in this sector would likely be high relative to the rest of the market. (That’s why it’s so important to compare quotes before buying a policy.)
Whatever the reason, insurance quotes can vary widely from insurer to insurer. For example, when we priced IP coverage for a software developer and management consultant, we found that quotes from Hiscox (a premium brand) were 4-5 times higher than the coverage cheapest professional indemnity on the market.
It’s worth comparing the substance of these quotes, though, and even asking the more expensive insurer why they’re more expensive. It could be that the cheapest quote is missing an essential element, or it could be that the more expensive insurer has given you a generic price and is willing to lower their quote.
With all of this in mind, it’s always worth comparing how different insurers will charge for professional indemnity coverage for your business, whether you’re renewing or buying your first policy for a new small business.
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We collected quotes using an online quote system for a sole trader needing £2,000,000 of professional indemnity cover. The average figures displayed above reflect the average of the three cheapest quotes we could find. Data was collected for a few different occupations to see how IP insurance rates vary by occupation. Quotes can vary widely by industry, business size, location, and many other factors, so your PI insurance rates may
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