As a professional, you no doubt take great pride in your work and do your best to make sure every customer is happy with the results. Your clients rely on you to give them advice and provide services with reasonable skill and care. However, despite your best efforts, things can go wrong. Occasionally disagreements will occur. Regardless of your sector or role, any organisation that provides professional services or gives advice could be subject to legal proceedings if the recipient is unhappy with the quality of work delivered. 

 

In property and construction, PI is often a contractual requirement. Design and Build contracts are fast becoming the most common arrangement in the UK. For Architects, engineers, contractors and others in the supply chain, PI will be a vital business expense. 

If you provide any type of design services, whether for a whole project or just part of it, you’ll likely be required to hold PI insurance and to maintain it for a minimum period, usually twelve years. However, see the note below regarding changes following the introduction of the Building Safety Act (BSA). 

 

 

PI insurance policies are typically structured around a specified limit of indemnity. This is the maximum amount the insurer will pay in the event of a claim. These limits usually start in the hundreds of thousands of pounds, but common standard levels are £1 million, £2 million, £5 million, or even £10 million, depending on the nature of the business and the risks involved. 

 

For larger or more complex projects, clients may require higher total cover than a single insurer is willing to provide. In these cases, the PI insurance may be structured in ‘layers’, with multiple insurers each covering a portion of the total limit. For example, one insurer might cover the first £5 million, while others sit “above” that layer, each taking on an additional tranche of risk. This layered approach helps spread the exposure among insurers and allows clients to access higher levels of protection without relying on a single provider to carry the entire risk. 

How much does it cost? 

 

The cost of professional indemnity insurance varies significantly depending on a range of factors unique to each business. Insurers assess the risk profile by looking at the nature of the work undertaken, the industry sector, annual revenue or turnover, and any previous claims history. 

 

Businesses engaged in higher-risk activities or with a record of past claims will generally pay higher premiums. Conversely, firms with low-risk operations and a clean claims record may benefit from more competitive rates. See below for a specific point relating to the construction and real estate sector. 

 

 

Misrepresentation is a common issue, although often unintentional. SME businesses commonly turn to off the shelf online products assuming they’ll do the job. This leads to a failure to disclose key facts which impact the likelihood of a claim being paid. 

When applying for a policy, expect to provide information on things like business description, fee income, types of works undertaken etc. It is crucial to disclose all your activities and answer questions carefully. If you do not notify all activities undertaken, you may discover you are not covered, should a problem arise. 

 

 

Since the introduction of the Building Safety Act (BSA), some businesses in the construction and real estate sectors have found it harder to obtain PI cover. PI policies are underwritten on a ‘claims made’ basis. This contrasts with other types of insurance, which are often underwritten on an ‘occurrence’ basis. 

 

For example, if someone had an accident on site, the claim would be made against the employer’s liability insurance active on the day of the accident. For PI, it is the policy that is in force at the time the claim is made that is responsible. 

 

As a result of the increased perceived risks and issues relating to building safety following the Grenfell Tower tragedy premiums increased almost universally. Construction news cited some premiums increasing by as much as 1500%. However, this appears to now be settling back to a more stable position. Working with a good broker, it should be possible to ensure you have the best possible premiums for your business. 

In addition to this, the BSA significantly increased the liability period – in some cases to 30 years. This means PI insurers are now potentially taking on the risk on any negligent act or omission that you may have made in the past, as well as any that you might make during the period of insurance. 

 

 

UK-based contractors should be cautious of “fitness for purpose” obligations in construction contracts, as these impose a higher duty than the standard “reasonable skill and care” typically expected of professionals. Under a fitness for purpose clause, a contractor is required to deliver a result that is suitable for its intended use, regardless of whether they acted diligently or followed professional standards. This can make them liable for outcomes beyond their control or expertise, such as performance guarantees, even if they carried out the work competently. 

 

Importantly, most professional indemnity (PI) insurance policies held by UK contractors only cover liabilities arising from negligence—i.e., failure to exercise reasonable skill and care. They do not usually extend to strict liability obligations like fitness for purpose. This creates a significant risk: if a contractor agrees to such a clause and fails to meet the defined purpose, they may be liable for damages not covered by their insurance. As a result, contractors should seek legal advice before accepting such terms and consider negotiating contract wording to align liability with their PI insurance coverage. 

 

 

The team at Merlin are specialists in sourcing insurance cover for the property and construction sectors. We’ll work with you to understand the unique exposures associated with your business and craft a package bespoke to your needs and risk profile. Keeping you covered, compliant and confident. 

 

You can find out more about insurance for the property and construction sector here or get in touch to discuss your business needs.