Professional Indemnity Insurance
Protect your professional reputation and finances from claims of negligence, errors, or breach of professional duty. Essential coverage for service-based businesses and anyone who provides advice for a living.
What Is Professional Indemnity Insurance?
Professional indemnity (PI) insurance protects you when a client claims they have suffered a financial loss because of an error, omission, or act of negligence in the professional services you provided. It covers the cost of defending the claim and any compensation or settlement you are required to pay.
Unlike public liability insurance, which covers physical injury and property damage, PI insurance is specifically designed for the risks that come with providing advice, designs, consulting, or any professional service where your expertise is relied upon by clients.
Professional indemnity insurance is also commonly known as PI insurance, professional liability insurance, or errors and omissions (E&O) insurance. In New Zealand, it is a critical form of protection for anyone whose work involves professional judgement, recommendations, or deliverables that clients depend on to make decisions.
A single claim — even an unfounded one — can result in significant legal costs. PI insurance ensures that a professional mistake or a disgruntled client does not threaten the financial survival of your business.
What Does PI Insurance Cover?
Professional Negligence
Claims that you failed to exercise reasonable skill and care in delivering your professional services. Illustrative example: an accountant makes an error in a tax return that results in the client receiving penalties from the IRD.
Errors and Omissions
Mistakes in your work or things you should have done but failed to do. Illustrative example: a web developer delivers a site with a security flaw they should have identified, leading to a data breach for the client.
Breach of Professional Duty
Claims that you breached your duty of care, fiduciary duty, or confidentiality obligations to your client. This includes misuse or unauthorised disclosure of confidential information.
Intellectual Property Infringement
Claims that your work unintentionally infringes on someone else's copyright, trademark, or other intellectual property rights. Illustrative example: a graphic designer unknowingly uses a licensed image in a client's branding.
Defamation
Claims of libel or slander arising from statements you make in the course of your professional work — for example, in a published report, valuation, or professional opinion.
Loss of Documents
Cover for the cost of replacing or restoring documents in your care that are lost, damaged, or destroyed — such as client records, plans, or contracts.
Legal Defence Costs
Solicitor fees, barrister fees, expert witness costs, and court costs incurred in defending a claim — even if the claim is ultimately found to be without merit. Defence costs alone can run into tens of thousands of dollars, making this one of the most valuable aspects of PI cover.
What's NOT Covered by PI Insurance
- Physical injury or property damage — this is covered by public liability insurance, not PI
- Deliberate or dishonest acts — fraud, criminal conduct, and intentional wrongdoing are excluded
- Known circumstances — situations you were already aware of (or should have been aware of) before the policy started
- Contractual liability beyond common law — liabilities you assume through contract that go beyond what the law would normally impose
- Trading losses or insolvency — your own business's financial losses or failure
- Fines and penalties — regulatory fines or penalties imposed on you personally (though defence costs for regulatory proceedings may be covered)
How Much Does Professional Indemnity Insurance Cost?
PI insurance premiums depend heavily on your profession, the nature of your services, your revenue, and the coverage limit you choose. Below are indicative monthly ranges for common professions. Actual premiums vary — your insurer will assess your specific risk profile.
| Profession | Indicative Monthly Cost | Typical Cover Level |
|---|---|---|
| Accountants and bookkeepers | $25 - $60/month | $500K - $2M |
| IT consultants and developers | $30 - $80/month | $1M - $5M |
| Engineers | $40 - $100/month | $1M - $5M |
| Financial advisers | $50 - $120/month | $1M - $5M |
| Architects and designers | $40 - $90/month | $1M - $5M |
| Marketing and PR consultants | $20 - $50/month | $500K - $2M |
| Management consultants | $25 - $70/month | $1M - $2M |
| Recruiters and HR consultants | $20 - $55/month | $500K - $2M |
Factors That Affect Your Premium
- - Your profession: Higher-risk professions (financial advisers, engineers) pay more than lower-risk ones (marketing consultants)
- - Annual revenue or fee income: Higher turnover means more work, more clients, and more potential claims
- - Coverage limit: A $5M policy costs more than a $500K policy
- - Claims history: Previous claims or notifications may increase your premium
- - Retroactive date: Policies covering a longer history of past work tend to cost more
- - Client types: Working for large corporates or on high-value projects may increase your risk profile
Who Needs Professional Indemnity Insurance?
If your business involves giving advice, providing professional opinions, creating designs, or delivering services that clients rely on to make decisions, you should carry PI insurance. A claim does not need to be valid to be expensive — defending even an unfounded allegation of professional negligence requires legal representation.
The following professions and roles commonly require PI insurance in New Zealand:
Is PI Insurance Legally Required in NZ?
For most professions, PI insurance is not a legal requirement in New Zealand. However, there are important exceptions, and many situations where it is effectively mandatory even without a specific law.
Professions Where PI Is Legally Required
- Financial advisers — under the Financial Markets Conduct Act 2013, licensed financial advice providers must hold PI insurance as a condition of their licence
- Lawyers — the NZ Law Society requires all practising lawyers to maintain PI insurance
- Some categories of engineers — particularly those involved in building and construction work under the Building Act
Situations Where PI Is Contractually Required
- Government contracts — most central and local government agencies require PI insurance as a condition of engagement for professional service providers
- Corporate clients — larger companies routinely require their consultants and professional service providers to hold PI insurance
- Professional body membership — some industry associations require or strongly recommend PI insurance as a condition of membership
- Subcontracting agreements — principal contractors often require subcontractors providing professional services to carry PI insurance
How Claims-Made Policies Work
PI insurance operates on a claims-made basis, which is different from how most other insurance policies work. Understanding this distinction is important because it affects when and how you are covered.
Claims-Made Policy (PI Insurance)
Covers claims that are first made against you during the policy period, regardless of when the work was done (subject to the retroactive date).
Illustrative example: You did consulting work in 2023. Your client discovers an error in 2025 and files a claim. Your 2025 PI policy responds to this claim, provided the retroactive date covers 2023.
Occurrence-Based Policy (e.g., Public Liability)
Covers incidents that happen during the policy period, regardless of when the claim is made.
Illustrative example: A customer slips in your shop in 2023 but does not file a claim until 2025. Your 2023 public liability policy responds because the incident occurred in 2023.
Retroactive Date
The retroactive date sets the earliest date from which your policy will cover claims. Work done before the retroactive date is not covered. When you first take out PI insurance, the retroactive date is usually set to the inception date of that first policy. If you maintain continuous cover without gaps, the retroactive date is typically carried forward — meaning your current policy covers all past work back to when you first started your PI insurance.
Run-Off Cover (Extended Reporting Period)
If you retire, close your business, or stop practising, claims can still arise from work you did while you were active. Run-off cover extends your PI insurance for a specified period (commonly 3 to 7 years) after your main policy ends. This ensures that late-emerging claims are still covered. Run-off cover is particularly important for professions where problems may not surface for years — such as engineering, architecture, or financial advice.
Why Continuous Cover Matters
Because PI is claims-made, any gap in your insurance can leave you exposed. If you let your policy lapse and then take out a new one, the new insurer will typically set a new retroactive date — meaning past work is no longer covered. Maintaining continuous PI insurance without breaks is strongly recommended.
Professional Indemnity vs Public Liability Insurance
These two policies cover fundamentally different risks. Many professional service businesses carry both.
| Professional Indemnity | Public Liability | |
|---|---|---|
| Covers | Financial loss from professional errors | Physical injury and property damage |
| Triggered by | Advice, services, or design errors | Physical incidents |
| Policy type | Claims-made | Occurrence-based (usually) |
| Typical cost | $25 - $120/month | $15 - $60/month |
| Type of loss | Financial / economic loss | Bodily injury / property damage |
| Best for | Consultants, advisers, designers | Tradies, retailers, hospitality |
For a detailed comparison, see our Public Liability vs Professional Indemnity guide.
Frequently Asked Questions
How much does professional indemnity insurance cost in NZ?
Professional indemnity insurance in New Zealand typically costs between $25 and $120 per month for small businesses and sole practitioners. Actual premiums vary based on your profession, revenue, coverage limit, claims history, and the nature of services you provide.
Is professional indemnity insurance legally required in NZ?
PI insurance is legally required for certain regulated professions in New Zealand, including financial advisers (under the Financial Markets Conduct Act), lawyers (through the NZ Law Society), and some categories of engineers. Many other professions require it contractually even where it is not a legal mandate.
What is a claims-made policy?
A claims-made policy covers claims that are first made against you during the policy period, regardless of when the error or omission occurred (subject to the retroactive date). This differs from occurrence-based policies, which cover incidents that happen during the policy period regardless of when the claim is made.
What is the difference between professional indemnity and public liability insurance?
Professional indemnity covers financial losses caused by your professional advice, services, or design errors. Public liability covers physical injury to people or damage to property caused by your business operations. Many businesses need both types of cover.
Do I need PI insurance if I am a sole trader?
If you provide professional advice, consulting, design, or any service where a client could suffer a financial loss due to an error or omission on your part, then PI insurance is strongly recommended regardless of your business structure. As a sole trader, you are personally liable for claims, which makes cover even more important.
What is run-off cover and do I need it?
Run-off cover (also called extended reporting period) provides continued PI insurance after you stop trading or retire. Because PI is claims-made, a claim could arise years after the work was done. Run-off cover ensures you are protected for past work even after your main policy ends. It is particularly important if you are closing your business, retiring, or merging with another firm.
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