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Professional indemnity insurance – 10 key questions answered

24 July 2017

Professional indemnity insurance (PII) covers civil liability claims - usually professional negligence - in private legal practice. We answer some of the most common questions around PII, including who needs it and how much cover you need.

1. Who needs PII and why?

If you’re a solicitor in private practice, you must have PII to comply with the Solicitors Regulation Authority’s indemnity rules.

PII also increases firms’ financial security and is important for public confidence in the legal profession.

If you’re working in-house just for your employer, you don’t need PII. However, if you’re working in-house and act for a client other than your employer in any of the following situations, you must have PII cover:

  • pro bono work
  • commercial legal advice services
  • law centres, charities and other non-commercial advice services
  • foreign law firms

See more information on in-house lawyers and PII.

2. When should I get PII?

You must have cover all the time you’re practising. New firms must have it in place before they start practising; existing firms must have cover when renewing their practising certificate.

Arranging cover can be a long process, so plan well ahead.

3. How do I get PII?

You can buy cover directly from an insurer or through a specialist broker.

In England and Wales you can only buy solicitors’ PII from an insurer on the SRA’s list of participating insurers.

4. Should I buy PII from an insurer or go through a broker?

Although the insurance contract is between the solicitor and the insurer, most insurers can only be accessed through a broker.

A broker will act as your agent to arrange PII cover. A good broker will give independent, professional advice on the best cover available, so most firms use them.

Large firms can usually get insurance through one broker. Smaller practices may need more than one in order to access all the insurers who can offer them PII.

5. Where can I search for a broker or insurer?

More information is available in our guide to insurers (PDF 943kb).

6. How much cover do I need?

The mandatory level of insurance is £2m (£3m for relevant recognised bodies and relevant licensed bodies -see the SRA’s definition of these terms). This is sometimes referred to as ‘primary layer’ cover.

Read our advice on getting the appropriate level of PII cover (PDF 272kb).

7. How is the premium paid?

Most insurers ask for the full premium before they will confirm cover, but you might be able to pay by instalments, or get a loan, and spread the cost over a year.

If you can’t meet the cost of PII, you must notify the SRA.

8. What information will I need to provide to insurers?

Insurers focus on particular areas to assess what type of insurance risk your firm presents. These areas vary between insurers because each assesses risk differently, but there are some which are commonly regarded as a higher risk.

It’s likely you will need to provide information about:

  • areas of practice
  • claims history
  • disciplinary and regulatory issues
  • areas of expertise
  • gross fees
  • risk management practices

9. Do overseas firms need PII?

If your firm practises wholly overseas, you will not need PII but you must have whatever indemnity insurance is required by the jurisdiction in which your firm practises. Clients must have the benefit of insurance which takes into account the:

  • nature and extent of the risks you incur in your overseas practice
  • local conditions in the jurisdiction in which you are practising
  • terms on which PII or other indemnity insurance is available.

10. What’s ‘run-off’ cover?

Another regulatory requirement, run-off cover is PII taken out when a firm closes, and covers the next six years. It ensures consumers can be compensated even when a firm has stopped doing business, and provides financial security for retired partners.

Premiums are usually two or three times the cost of the last premium, but because it’s spread over six years, this is around 50 per cent of what the cost would have been had the firm remained open. Read more about run-off cover.

For more detailed information on PII, read our practice note.