If your product is advice, design or code, your biggest risk is a client saying you got it wrong. What PI covers, why claims-made policies punish gaps, and how to size the limit.
A consultant's office rarely burns down. What happens instead is quieter: a recommendation that cost the client money, a design with an error nobody caught, a missed deadline that cascaded into someone else's losses — and then a letter from a lawyer. Professional indemnity (PI) insurance exists for exactly this: it pays your legal defence and any damages when a client claims your professional work caused them financial loss.
The single most important thing to understand about PI is that it works on a claims-made basis — the policy that responds is the one in force when the claim arrives, not the one in force when you did the work. Everything unusual about buying and keeping PI flows from that one mechanic, so we will spend real time on it.
Who actually needs this
Any business whose deliverable is judgement rather than goods: management and IT consultants, marketing and design agencies, engineers and architects, accountants, software studios, recruiters. Some professions are required by their regulator or professional body to carry it. For everyone else the trigger is usually a contract — larger clients routinely require PI at a stated limit before they will sign, which is why many agencies buy their first policy the week they land their first enterprise deal.
What it covers, and what it never did
A typical PI policy covers negligence in your professional services: bad advice, errors and omissions in deliverables, and often associated risks like unintentional breach of confidentiality, defamation in your output, or loss of client documents. It pays two things — defence costs, which arrive early and grow fast, and damages or settlements, which may never arrive at all. In practice a large share of PI value is the defence: claims that end in no payout still consume months of lawyer time.
What PI never covered is worth stating plainly.
- Deliberate wrongdoing. Fraud and dishonest acts are excluded everywhere.
- Fee disputes. A client refusing to pay your invoice is a commercial argument, not a negligence claim.
- Bodily injury and property damage. Those belong to public liability, a different policy that agencies often buy alongside.
- Guaranteed outcomes. If you contractually promised a result — uptime, sales figures, a ranking — many wordings treat the failure of that promise as an excluded contractual liability rather than negligence. Watch what your sales team signs.
Claims-made: the trap in the tense
Because PI responds to when the claim is made, three consequences follow.
First, cancelling a policy cancels protection for all your past work. The project you finished three years ago is only covered if you still hold a policy the day its claim lands. This is why professionals buy run-off cover when they retire or close the company — a policy that stays alive for claims after the work has stopped.
Second, every policy has a retroactive date: work performed before it is never covered. When you switch insurers, the new policy must carry your original retroactive date forward. A broker who lets that date reset to the switch date has silently deleted your history.
Third, you must notify circumstances, not just claims. If a client starts grumbling that your work caused them losses, telling your current insurer promptly locks that matter to this policy year. Staying quiet and hoping is the classic way to have a later claim declined.
Sizing the limit
There is no formula, but there is a sensible frame: the limit should reflect the damage your worst realistic error could cause a client, not the size of your fees. A four-person consultancy advising on a large ERP migration can cause losses far beyond its own revenue. Practical anchors: the limits your client contracts demand, the value of the largest project you touch, and whether your limit is per-claim or aggregate for the year — an aggregate limit that one bad claim can exhaust leaves the rest of the year bare.
Before you sign: the short checklist
- Is the retroactive date at or before the date you started trading?
- Per-claim or aggregate limit, and does it satisfy your biggest client contract?
- Is defence inside or outside the limit — do lawyer costs eat your cover?
- Does the wording cover the specific services you actually sell, in the jurisdictions your clients sue in?
- Do you have a process for notifying circumstances early?
PI is unusual among SME covers: it is often bought under contractual duress, at the last minute, to unlock a deal. Buy it that way if you must — but read the retroactive date before you celebrate the signature.