Professional indemnity policy and premium computation
A Professional Indemnity (PI) policy protects businesses and professionals against claims of negligence or errors in their work that lead to financial losses for clients. The premium for a PI policy is typically calculated as a percentage of the firm's fee income or annual turnover, with rates ranging from 0.25% to 5%.
What is a Professional Indemnity Policy?
PI insurance covers the financial consequences of errors or omissions made in professional work.
It protects businesses from legal fees, compensation payments, and other costs associated with claims for negligence or errors.
Examples of PI claims include incorrect advice, substandard work, or defamation.
How is the Premium Calculated?
The premium is usually calculated based on a percentage of the firm's fee income or annual turnover.
Factors influencing the premium include the type of profession, the size of the firm, and the level of risk involved in the work.
Example: A practice with a 3-year average revenue of $200,000 and a premium rate of 4% would have a premium of $8,000.
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