Small businesses leaving themselves exposed

Many consultants, particularly small companies and freelancers, are potentially leaving themselves exposed to risk by buying professional indemnity (PI) insurance policies without checking that the level of cover they’ve bought is in line with the needs of the work they are doing.

That’s the message from Valerie Hockley, managing partner of PolicyBee LLP, a new and specialist professional insurance broker for small businesses, consultancies, freelancers and contractors, which launches today.

“A lot of consultants choose their level of PI cover according to their own size rather than the work they are doing. Quite often, they won’t take account of how critical the work that they’re doing might be to the success of an overall project,” explains Hockley.

“A £250,000 level of cover is probably a good place to start for most small consultancies, but we would recommend buying as much as you can afford. If your role in a project is fundamental to its success and you make a mistake, you could be liable for costs covering much more than the value of your own contract. Our message is always to talk to us before taking on a major project; we can work with you to set a level of cover appropriate for the work you’re doing.”

Hockley also cautions about reducing the level of cover again too quickly after the completion of the project.

“There is a temptation to complete a project, walk away, and bring the level of cover back down again to reduce your premiums. Consultants should be aware that their potential liability can extend for some time after the notional end of the contract. If they do reduce their level of cover and they’re subsequently sued, they’ll only have the protection of the reduced level of cover.”

Professional indemnity is a specialist area of insurance which requires advice from a suitably experienced insurance broker.

A PI policy protects a business against claims of negligence and financial loss made by a client or a third party.

If a mistake has been made or negligent advice has been given, PI insurance will cover the cost of any awards, damages or compensation paid. It will also cover the legal costs associated with a claim.

PolicyBee believes that when it comes to professional indemnity, its specialist knowledge can provide tangible support for consultants. It has a website which is quick and painless to use, and which is packed with useful, jargon-free information. A consultant can buy online and download documents in minutes.

Or if they prefer talking to someone, PolicyBee has a team of knowledgeable, experienced people who take the time to understand their customers’ businesses and will manage all aspects of their customers’ insurance. The person who arranges cover will likely be the same person who manages each policy holder through any claims that may arise.

From April 2011, PolicyBee will arrange professional indemnity insurance across a variety of businesses in the accountancy, architecture, design, IT, management, marketing, public relations, recruitment and training sectors.