How Professional Indemnity is increasingly important in a service-led economy

Professional Indemnity insurance (or PII) is a regulatory requirement for many businesses but it  can also be of great benefit to you and your end customers. It can bring clarity, understanding and confidence to your commercial relationships. If there has been a genuine error or omission it can ultimately provide funds to help put things right and protect those relationships.

In recent years, this particular type of cover has surged in popularity. It has moved from being a niche market, associated mainly with traditional professional services firms, to a relatively mainstream form of insurance. It is bought by businesses of all sizes, including solo consultants and professionals.

In this article, we’ll explore how the PII market has grown, how it might develop in the coming years and the important role it plays in supporting our economy.

The growth of Professional Indemnity insurance in the UK

The value of the UK’s market for PII was estimated at £3.3 billion in 2023, with further growth forecasted – albeit at a slower rate than recent years – between 2024 and 2028.

The report, by Global Data also estimated that there were over 1.5 million live policies in 2023, covering over 500 different occupations. These range from the traditional professions (such as lawyers, accountants and architects) right through to solo consultants and advisers.

PII cover has become more popular thanks to the flexibility of insurers who have developed policies to cover such a broad array of professions. As more professionals have taken out cover, insurers have then been able to spread their risks and keep premiums relatively competitive.

The UK’s history as a service-led economy

Most people are aware that the UK has moved from a manufacturing-led economy to one that is service-led. What may surprise you though is that it was as long ago as 1881, that the percentage of the workforce working in services overtook that for the manufacturing sector.

Between April and June 2024, 81% of the UK’s economic output came from services. This figure will include a lot of sectors such as retail, for which PII is not particularly relevant. However, when you look more closely at some of the sectors that have grown in recent years, the continued growth of the PII market becomes easier to understand.

The Management Consultancies Association reported in 2024 that the UK’s consulting sector had grown by 11% in 2023 and had almost doubled over a five-year period (from a value of £10.56 bn in 2018 to £20.4bn in 2023).

Large consultancies, including the “Big 4” firms will undoubtedly have played a big part in this growth, but it’s clear that the smaller end of the market such as independent consultants remains very healthy too.

In April 2023, Management Today reported that 66% of independent management consultants were predicting that more consultants would continue to switch to freelance work in the following 8–10 years.

What could happen next for the UK’s PII market?

It’s been a turbulent few years for the UK economy in general, but the number of self-employed people in the UK has remained high throughout. IPSE reported recently that the UK’s solo self-employed contributed £331bn to the economy in 2023, up from £278bn in 2022, and that a total of 4.2 million people fall into this category.

This is down from its peak of 4.6 million in 2019, the last full year before the COVID pandemic. However, there are a number of reasons to believe that self-employment in the UK could be about to grow again.

The new Labour Government’s first budget increased National Insurance Contributions for employers, making it more expensive to employ existing staff, let alone recruit new staff. This could prolong the effects of a difficult job market which has seen vacancies significantly down and salary growth slowing throughout 2024.

The Government also introduced its Employment Rights Bill in October 2024, aimed at giving greater security to workers. It could be 2026 before much of the bill becomes legislation, however it’s likely that more responsibilities will be imposed upon employers.

Together, these factors could encourage employers to scale back on recruitment for longer, leaving experienced, skilled workers on the job market. Work will still need to be done though, so employers may instead opt for the flexibility of using freelance consultants for certain tasks. This in turn could create freelance opportunities for some of the experienced professionals who are unable to find jobs.

This could mean that the PII market is set for further growth in the coming years. So how will this benefit the new policyholders and their clients and other stakeholders?

The role of professional indemnity insurance in a service-led economy

To understand how PII supports a service-led economy, it’s important to look at some of the attributes that can make service businesses more risky.  A service-led economy comes with some very specific challenges.

Firstly, the work can be highly subjective in nature. This is particularly true of creative work, such as web design or emerging areas of expertise like sustainability. Even when working to as tight a brief as possible, there could still be room for disagreements over the quality or effectiveness of your work. A lot can come down to either party’s own interpretation.

Secondly, the work can be very complex. This imposes a duty on you as the provider of the service to communicate very clearly with your client, as a failure to do so could result in costly consequences. This is particularly true when the scope of a project changes as it progresses.

The third point is one that could become even more apparent if more people opt to become consultants as an alternative to employment in the coming years. The disparity in size and financial strength between say, a solo consultant and their large corporate client can create significant issues. An error or omission in their work could result in a level of loss that they could never afford to compensate the client for.

PII cover effectively addresses all these challenges and more.

One way or another it can bring disputes to a conclusion and ensure that they are assessed in a balanced manner by legal specialists to determine whether an error or omission has occurred.

Should there be a genuine claim against the policyholder, it can be resolved to the satisfaction of all parties, without either party becoming insolvent or suffering a significant financial loss.

Even if you never need to claim, having a PII policy in place gives you peace of mind to run your business effectively and take on work for large corporate clients without worrying unduly about the consequences.

It also gives peace of mind to your clients and potential clients, many of whom might buy very cautiously in a difficult economic climate. We’re often asked whether you should mention that you have PII in place, for fear of inviting claims. For anyone to claim against you though, they would have to have a very strong case with clear evidence of wrongdoing, so we don’t see this as a significant risk.

The future of professional indemnity insurance in the UK

As we’ve explained in this article, we expect to see continued growth in the PII market, which we feel will give greater confidence in many areas of the economy, after a difficult few years for the UK economy

If you’d like to know more about Professional Indemnity Insurance for your business, call us on 0191 649 8689 or contact us through the website and we’ll be happy to discuss your circumstances with you.