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8 months ago

Why is Indemnity Insurance so Expensive?

Numerous occupations, including accountants, consultants, surveyors, and engineers, rely on varying types of Professional Indemnity Insurance (PII) to do their job, whether required by law or simply an essential measure to protect their livelihood. However, getting the right cover for the right price can be tricky as insurance costs are on the rise.

One industry that people commonly associate with PII is law. A story from City AM recently revealed that rising premiums were directly responsible for the closure of nine UK law firms in the third quarter of 2022 alone, suggesting that this sector has been hit particularly hard. In this article, we explore why indemnity insurance is so expensive and what you can do to reduce your insurance costs.

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What is Indemnity Insurance?

Professional indemnity insurance is a type of policy designed by insurers to protect businesses offering any kind of professional service or advice. It acts as a safeguard against potential accusations of negligence from clients. As with all insurance policies, levels of coverage vary and can usually be tailored to your business.

Typically, it's highly recommended that professional service providers acquire some form of indemnity insurance if they give advice or handle sensitive data. In some cases, it is even required by law for businesses to practice legally in the UK.

Do I Need Indemnity Insurance?

As well as protecting businesses from negligence claims, PII policies can cover breach of copyright, defamation against your business, loss of important documents, and any costs associated with attending court, whether that be lost earnings or childcare expenses.

While indemnity insurance I may not be compulsory in your line of work, it is vital to consider the potential for mistakes that could result in costly and damaging claims. To safeguard your business from financial damage, it is advisable to do your research and secure the necessary level of coverage.

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Why is Indemnity Insurance so Expensive?

Firstly, we need to understand the handful of factors that generally affect insurance premiums and cause fluctuation in the market. The main contributor to increasing premiums is the number of claims being made. A higher volume of claims means a higher expenditure for insurers, and these costs are often passed on to customers. Emerging risks, market conditions, regulatory changes, and economic factors all play a significant part too. Remember, insurance is about risk versus reward for providers.

Some insurers are now choosing to exit the PII market, citing low profitability, and many are becoming hesitant to offer policies to businesses dealing with high-value transactions. According to research, UK-based law firms now allocate 5% of their annual turnover, on average, to cover the expense of obtaining indemnity cover. For solicitors operating in the property sector, that percentage soars to an incredible 20%.

Insurance expenses pose a growing challenge for Britain’s SMEs in the professional services sector. Particularly for start-ups and sole traders who don’t have thorough risk management systems in place as large companies do.

As the number of insurers in the market dwindles, and those left behind become more cautious about risk, it's likely that the rise in premiums will continue to escalate. For this reason, it is more important than ever for businesses to ensure they are getting the best insurance quotes available.

How Can I Find Affordable Indemnity Insurance?

If you're looking for a more affordable Business Insurance package, the Insurance Team at BusinessComparison is here to help! Whether you require indemnity insurance for a small business or a large corporation, we have the expertise to assist you. Regardless of your trade or scale, there is a wide array of coverage options to ensure you get the necessary protection. To secure the best quote, submit our form below.

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Sam White