Professional Indemnity Insurance

What Professional Indemnity Insurance Cover Actually Answers

PI insurance indemnifies you against financial loss that somebody else suffers because of the professional services you supplied. Not injury, not damaged property — money lost because a piece of the services was wrong, late, incomplete or misunderstood.

In practice that means three things. Allegations of negligence in the services performed. Errors and omissions, including the ones nobody noticed for two years. And breach of professional duty, which is the broad head most claims are eventually pleaded under. An indemnity claim can be brought years after the file closed, which is why the arrangement is judged on its dates as much as on its limit.

Defence costs matter as much as the settlement, and often more. A great many indemnity insurance matters end with no money paid to the complainant and a substantial legal bill anyway, and PI insurance carries those costs from the first letter rather than from the first judgment. For a small firm that alone is the reason to hold it.

Two boundaries are worth stating plainly. Bodily injury and property damage to a third party belong to public liability insurance, not to professional liability. And deliberate dishonesty is excluded everywhere, though an innocent partner is usually protected against the acts of a dishonest one.

The wider set of business protections these firms hold sits on our business insurance page, and the two are bought together far more often than separately.

When Is Professional Indemnity Insurance Required in Hong Kong?

Three different forces make professional indemnity insurance (PII) compulsory in practice, and only one of them is the law.

The first is regulation. Solicitors are covered by the Law Society scheme, and licensed corporations under the SFC face insurance requirements attached to certain regulated activities. If you are licensed, the obligation is defined for you and the only question is whether the limit you hold still matches the rules.

The second is professional membership. Architects, engineers and surveyors are frequently required by their institute to hold indemnity insurance as a condition of practising, and the requirement usually names both a minimum limit and the basis it must be written on.

The third is contract, and it is the one that catches most firms. Consultancy agreements in construction, appointments from listed clients, and government tenders routinely require professional liability protection at a stated limit before the services begin. No policy, no contract — which is why the request usually arrives with a deadline attached.

Outside those three, nothing in Hong Kong law obliges an ordinary consultancy to hold it. Plenty do anyway, because the clients they want will not appoint them otherwise.

Where staff rather than clients are the exposure, that belongs with employees’ compensation instead.

We go into who specifically needs to hold it, by profession and by contract type, in our full guide to who needs PI insurance.

What Professional Indemnity Insurance Cost Depends On

There is no rate card, and any broker who quotes one before asking what you do is guessing. PI insurance cost is built from six inputs, and a firm can move four of them.

Fee income comes first. The premium scales with turnover, because turnover is the best available proxy for how much professional services output is out there capable of going wrong. Declare it honestly on the proposal form, because it is checked at renewal.

Discipline comes second, and it moves the number further than anything else. Structural engineering, financial services and anything touching a listed company sit at one end; graphic design and marketing services sit at the other, on the same fee income.

Then the limit and the excess, which are the two levers a firm actually controls. Doubling the limit costs far less than double, because most claims never approach the top of it. Raising the excess reduces the premium immediately, and is the fastest saving available to a firm confident in its own quality control.

Then claims history, over the past five or six years, and finally territory. Services performed for parties in the United States or under United States jurisdiction moves the price sharply, and it is the single input most firms forget to mention.

The market here is well served, with insurers including Chubb writing this class alongside the specialists. We approach several rather than one, because the loadings on professional liability differ enough between them to matter, and our services here are the comparison rather than a single quotation.

Professional Indemnity (PI) Insurance and Public Liability Are Not the Same

This is the most common confusion we deal with, and the two answer completely different events.

Public liability responds when a person is injured or property is damaged — a visitor falls in your office, equipment is dropped on somebody’s car. It is about physical harm, and public liability claims are usually obvious on the day they happen.

PI insurance responds when nobody is hurt and nothing is broken, but somebody has lost money because of what you advised, designed, specified or reported. The loss is purely financial, and the claims frequently surface long after the file was closed.

The practical consequence is that public liability protection is silent on exactly the events a consultancy is most likely to face, and professional liability protection is silent on the ones a shop is most likely to face. A firm that receives visitors on its own premises and also supplies advice needs both kinds of liability insurance, and most tender documents ask for both by name.

There is a third distinction underneath. Public liability is normally written on an occurrence basis, so the year the incident happened is the year that responds. Indemnity insurance is written on a claims-made basis instead, which changes everything about when protection has to be in force — and that is worth its own section below.

Where a business buys both, it is usually worth placing them with the same broker rather than separately. The two policies have to agree on where one stops and the other starts, and a gap between two insurers is discovered at exactly the wrong moment.

How Much Indemnity Insurance Cover Do You Need?

Firms usually pick the limit from whatever the last contract demanded, which is how a practice ends up carrying the same figure five years and three times the fee income later.

On large construction appointments the answer is sometimes a separate single project professional indemnity (SPPI) contract sitting outside the annual one, so the practice limit is not exhausted by a single development. Three questions set it properly. What is the largest single project you are exposed on, because a claim is measured against the loss your client suffers rather than against the fee you earned. What limits do your clients require, since the contractual floor is a floor and not an answer. And how many claims could arise from one root cause, because a specification error repeated across a development produces several at once.

That last point is where the aggregate matters. Most schedules give a limit for any one matter and a separate annual aggregate, and a firm with a single limit and no reinstatement can exhaust the whole year on the first serious matter. Paying for one reinstatement is usually cheaper than doubling the limit outright.

Defence costs are the other half of the question. Where they sit inside the limit, a long dispute erodes the money available to settle; where they sit in addition to it, they do not. The difference rarely shows up in the price and always shows up in a claim.

We size this against your actual contracts and your actual clients rather than against a rule of thumb. It takes one conversation, and the answer is frequently a different shape rather than a bigger number. The benefits of getting it right show up only once, and by then the limit cannot be changed.

There is a second sizing question underneath the first, which is how the limit interacts with the rest of the business. A firm carrying a modest professional liability limit alongside a generous public liability one has usually bought in the wrong order, because the services it sells are where its exposure actually sits.

Sector norms are a useful sanity check rather than an answer. Architectural and engineering appointments in Hong Kong tend to state a limit against the value of the development; financial and advisory services tend to state one against assets or fee income; smaller consultancies are often asked for a flat figure that has not moved in a decade. Talk it through with our team and we will tell you where your own liability limit sits against what your peers are being asked for, and whether the gap is worth closing.

How a Claim Actually Runs, and Why the Dates Matter

Indemnity insurance is written on a claims-made basis. The policy that responds is the one in force on the day the claim is made against you, not the one in force when you performed the services. Three consequences follow, and every one of them has caught somebody out.

First, the retroactive date. Past services are only protected back to that date, so a firm that switches insurers and loses its original retroactive date quietly gives away years of protection. Keep it, and check it at every renewal.

Second, notification. The duty is to notify circumstances that might give rise to a claim, not to wait for a letter of demand. Notifying a circumstance during the policy year locks that year in as the one that answers, however long the matter then takes. Sitting on it is the single most expensive thing a firm can do.

Third, run-off. Because it is claims-made, protection ends when the policy ends even for services performed years earlier. A practice that closes, merges or retires needs run-off protection for the tail, and it is bought at the point of closing rather than afterwards.

Our services include watching those three dates on your behalf, and reviewing the liability limits alongside them, and raising them before they become a problem, because none of them is visible on a renewal invitation.

When a matter does arrive, the first hour is the one that counts. Say nothing to the complainant that could be read as an admission, put the file beyond further amendment, and tell us. Insurers can decline where a firm has prejudiced the defence by negotiating on its own, and that is a self-inflicted financial loss on top of the original one.

From there our services are practical. We place the notification, deal with the insurer’s appointed solicitors, and keep you informed about what the liability actually looks like as it develops rather than at the end. Most matters close for far less than the firm feared, and a good many close for nothing at all.

One last habit worth adopting. Keep a short written note of every engagement where the brief changed part way through, and file it with the appointment. Years later, when somebody argues that you were asked to do something you were not, that note is frequently the whole defence — and it costs nothing to make at the time.

Frequently Asked Questions