Do electricians and other similar trades need professional indemnity insurance?
If you’re an electrician considering starting your own business and want to ensure that your business housekeeping is in order, then you may be wondering, ‘do electricians need professional indemnity insurance?’
Do electricians need professional indemnity insurance?
Although not a legal requirement for electricians or any other trade or service provider, professional indemnity insurance (PI) is an important insurance policy to consider taking out when running your own business.
Professional indemnity insurance is designed to protect you and your business if subjected to claims of poor workmanship or professional negligence that have led to customers suffering financial loss as a result of your work or advice, including the cost of defending these claims in court if required.
What does it cover?
Professional indemnity insurance, also known as professional liability insurance, is designed to protect business owners, freelancers and self-employed people from the expense of dealing with claims from customers who have experienced financial loss as a result of the work you have carried out or advice that has been given.
If an electrician makes a mistake or provides advice that costs their client money, then they could be liable for compensation claims to recover the client’s loss. Professional indemnity insurance is intended to cover this type of cost but without it, the tradesperson would have to defend and settle the claim out of their own pocket.
Read on to understand what professional indemnity insurance is, how it affects electricians and why it’s important for every sole trader or limited company offering electrical services to ensure they are properly protected from customer disagreements in the future.
What is professional indemnity insurance?
Professional indemnity (PI) insurance is a policy that can be purchased from insurance providers that is designed to protect business owners, freelancers and self employed traders from the associated costs, including legal fees, that may arise when customers make claims of inadequate service delivery, damage or financial loss relating to the work or services that have been provided.
As a business owner, if you or your company is sued for professional negligence or are accused of providing an inadequate service, then costs of legal representation, fixing the wrongs, repairing your reputation, and finding new customers can quickly add up.
How does it affect electricians?
Electricity is dangerous and as electricians are required to give advice on electrical safety and are often required to specify electrical requirements for whole buildings at a time, there is always the chance that the advice you give can cause damage or a loss to others if things don’t go according to plan.
This loss could be financial, physical or reputational and in any of these cases, a claim for compensation could be made against you. This is where professional indemnity insurance comes in to protect you against these claims.
Having the right PI in place will ensure that:
You are covered for things you or your employees have or haven’t done
You are covered for professional negligence if you give poor advice or make a mistake
You are covered if an employee knowingly or accidently causes a loss for your customers
For example; if you are instructed to sign off electrical safety in a building and issue a electrical safety certificate, but then an electrical fire causes the customer to lose business, you could face a professional negligence claim.
Providing you have the correct level of professional indemnity insurance in place, the cost of legal fees and compensation due to the customer would be covered by your insurance provider.
The quality of services delivered
When your profession is based on trust and the delivery of specialist expertise, customers expect that certain standards and service levels are met. This is especially true of electricians.
When an electrician is contracted to undertake works for either private or corporate customers, it’s fair for them to assume that the electrician they hire will hold suitable qualifications and adhere to trading practices, electrical health and safety and industry regulations when carrying out the works required.
If the service delivered falls short of this and the customer gets less than they expected, professional indemnity insurance can offer the peace of mind that you, the contractor, will be protected from unexpected costs of rectifying any mistakes that may have been made or that led the customer experiencing financial or reputational loss as a result of the work you have carried out.
Similarly, advertising that you hold professional indemnity insurance can also provide peace of mind to potential customers looking for reassurance that they won’t be left out of pocket if disputes over workmanship do arise.
Do all businesses need PI?
In an ideal world, business owners would never have an unhappy customer, but as mistakes do happen, that’s not very realistic. Businesses that offer a professional service, like electricians, provide advice or handle client data or intellectual property should all seriously consider having professional indemnity in place.
Having the right PI in place will ensure that:
You are covered for professional negligence if you give advice or make a mistake
You are covered If an employee commits an act that causes a loss for a customer
You are covered if your work results in injury or damage to your clients property or their employees
You are covered If you lose or damage documents trusted to your care
You are covered if you share sensitive information without permission
Having professional indemnity insurance doesn’t mean you can, or should lower your standards of service, but it does offer peace of mind that any claims for compensation made against you, or your business can be settled by your insurance provider without fear of your business going bust as a result of having to find often substantial levels of compensation.
How much does PI cost?
Just like car insurance, business insurance or travel insurance, the cost of professional indemnity insurance will vary by business type and need.
The insurance premium that you pay will be calculated based on the size of your business, the value of the contracts you undertake, and the nature of the work that you do. It’s important therefore that you answer any questions from the insurance provider honestly so they can make sure that you have the right level of professional indemnity insurance cover.
If you try to cut costs by opting for a cheaper policy, you could end up underinsured. This means that in the event of a claim being made against you, you will have to make up the shortfall in compensation or fees due yourself, which could be very costly.
The cost of professional indemnity Insurance will vary based on on:
the size of your business
the value of the work being protected
any contract stipulations regarding PI,
the level of risk associated with your profession
the level of cover that is needed and,
in some cases, the requirements set by professional regulatory bodies.
To give a general indication most insurers offer PI cover between £50,000 and £5 million.
Statutory regulations and legal requirements for electrical works
Electrical contractors are required to follow statutory regulations covering health and safety at work, safe working practices and the safe management of electrical supplies and products. They are also bound by contract law when delivering their work with key legislation to be aware of including; The Electricity at Work Regulations 1989 and The Building Act 1984 & 2000.