Professional Indemnity Calculator

Professional indemnity insurance, also written as professional liability cover, responds when a client alleges that professional advice or work caused them financial loss. Architects, engineers, management consultants, accountants, recruiters, design agencies and IT contractors all tend to carry it. The part nobody agrees on is how much.

This calculator implements one common sizing rule of thumb: three times annual fee income, or five times the largest single contract, whichever comes out higher, with a 1.5x uplift applied where prior claims exist. On the default inputs, 200,000 of fee income gives 600,000 and a 150,000 contract gives 750,000, so 750,000 is returned. Add a single prior claim and the figure moves to 1,125,000.

The premium row beside it applies a flat 0.5% of the cover figure, so 750,000 of cover shows 3,750 a year. Actual pricing is nothing like flat. It moves on discipline, claims record, the territories worked in, the excess carried and each insurer own appetite for the risk, and a high-risk profession can sit at several times that rate. The 0.5% row works as a common baseline for comparing one scenario against another rather than as a quote.

Two things sit above any figure calculated here. Professional bodies set minimum cover for their members, and the amounts differ by country and by profession, so the governing body for the work is where that number comes from. Legislators set requirements too: the European Union Services Directive allows member states to require providers whose services carry a direct risk to a client health, safety or financial security to hold professional liability insurance appropriate to the nature and extent of the risk (EU Services Directive 2006/123/EC, Article 23). Insurance supervision is national, so the detail changes from one market to the next, and the International Association of Insurance Supervisors is the global body whose standards those national supervisors work from. Client contracts form a third layer, frequently naming a cover level outright.

A worked example

With the defaults, annual fee income of 200,000, largest single contract of 150,000, and no prior claims, the tool returns 750,000.00. The supporting rows show where that came from: 600,000 on the fee income measure, 750,000 on the contract measure, a claims multiplier of 1x, and a premium estimate of 3,750.

What moves the number most

Only one of the two measures can drive the result at a time, and which one wins depends on how concentrated the work is. Below roughly 1.67 times the largest contract, fee income never bites: a practice billing 200,000 across a single 150,000 project is sized by the project. Push fee income above 250,000 with that same contract and the fee income measure takes over. Prior claims are treated as a switch rather than a scale, so the first claim adds 50% and the fifth adds nothing further.

The formula behind this

Cover equals the greater of three times fee income and five times the largest contract, multiplied by 1.5 where prior claims exist and by 1 where they do not.

Why it takes the greater of two figures

The suggested level takes the greater of the two measures because either can be the source of the largest claim. A firm with steady small engagements is exposed roughly in proportion to turnover, while a firm with one contract far bigger than the rest is exposed to that contract, and a rule that looked at turnover alone would badly under-size the second case. At the defaults, three times 200,000 of fee income gives 600,000 while five times a 150,000 contract gives 750,000, so the larger figure is returned.

What the model cannot see

Claims history adjusts the figure upward, reflecting how insurers price prior notifications, though a real underwriter weighs severity and recency rather than counting incidents. Several things the model cannot see matter as much. Professional indemnity is almost always written on a claims-made basis, so the policy in force when a claim is notified is the one that responds, and cover has to continue after the work stops. Whether defence costs sit inside or outside the limit changes what the limit is worth, since legal costs on a defended claim can consume a large share of it. The aggregate limit across a policy year is a different number from the per-claim limit, and a practice facing several notifications discovers the difference quickly. None of that appears in a multiple of turnover.