4 min read
What Is Professional Indemnity Insurance? (NZ Guide)
Professional indemnity insurance protects you if a client says your advice, design or professional work cost them money. It pays the claim and your legal costs, up to your policy limit. Here's what it covers, who needs it, and the one detail most people miss.
What professional indemnity covers
Professional indemnity (often called PI) covers claims that your professional work caused a client a financial loss. That includes negligence, errors, omissions, bad advice and breach of professional duty. A design that doesn't work, a figure that was wrong, a recommendation that turned out badly: if a client loses money and says it was your fault, PI is the policy that responds.
It also pays the legal costs of defending the claim, even if the claim turns out to have no merit. For many businesses that's the most valuable part. Defending a claim can cost tens of thousands of dollars before anyone decides who was right.
What it doesn't cover
PI covers financial loss, not physical harm. If someone is injured, or their property is damaged, that's public liability. PI also won't cover deliberate wrongdoing or fraud, and fines and penalties generally can't be insured in New Zealand.
Policies differ on the detail, such as cover for lost documents, defamation or contractual liability, so the wording matters as much as the price.
Who needs it
If you're paid for your expertise or advice, you probably need it. That covers consultants, designers, architects, engineers, accountants, IT and software providers, and many other professional services.
It isn't required by law for most NZ businesses, but many client contracts, council and government panels, and professional bodies require it, often at a set limit. If a contract asks for PI, check the limit and any wording requirements before you sign.
Tradies who sign off work
PI isn't only for office-based professionals. If you sign off work as compliant, you're giving a professional sign-off that others rely on. An electrician certifying that wiring is compliant, or a gasfitter certifying that gas work is compliant, can face a claim if that sign-off turns out to be wrong.
It matters most if you sign off other people's work. You're taking responsibility for work you didn't do yourself, and if it's faulty, the claim can come to you. For install-only work, public liability is normally the priority, but if signing off is part of your job, it's worth talking to us about PI.
Claims made: why continuous cover matters
Most PI policies are written on a "claims made" basis. They respond to claims made while the policy is active, not when the work was done. A claim about a job from three years ago is handled by the policy you hold today.
That has two consequences. First, keep your cover continuous - a gap can leave earlier work unprotected. Second, if you retire, sell or close the business, arrange run-off cover, because claims about past work can still arrive after you stop trading.
What affects the cost
The main factors are your profession, your turnover, your claims history, the limit you choose and the type of work you do, because some projects carry more risk than others. Your contracts can also set a minimum limit.
As brokers, we compare insurers, check the wording as well as the price, and make sure the limit matches what your contracts actually require.
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