"It’s vital that we as an industry recognise that confusion is created by overly-complicated product names and policies."
70% of small businesses don’t think they need professional indemnity insurance, suggesting a fundamental lack of understanding of this type of cover, according to research by small business insurance broker PolicyBee.
40% of small businesses admit to not protecting themselves with professional indemnity insurance and of those, 30% have not heard of this type of insurance.
When presented with alternatives, four out of five small businesses favour a new name for professional indemnity insurance, as it seems many believe the product wording is unnecessarily confusing.
96% were unable to correctly identify the meaning of the word ‘indemnity’ and one in ten think it is misleading to use the word ‘professional’ because the product is not limited to professional industries such as accountants, architects and lawyers.
The two most popular alternative names for professional indemnity insurance were professional liability iInsurance (chosen by 30% of small businesses) and errors and omissions insurance (14%), both of which are commonly-used terms for the product in the US.
Of those small businesses with professional indemnity insurance, a third didn’t believe it was an essential part of setting up in business and therefore only took out a policy when they were ready to employee their first member of staff or to meet the requirements of a specific contract - presumably when they believed there was a greater risk of either making mistakes or being sued.
Kerri-Ann Hockley, head of customer service at PolicyBee, said: “It’s particularly interesting that the US product names for professional indemnity insurance resonate so well with a UK audience.
“We know that small businesses are looking for simplicity, reassurance, and peace of mind from their insurance policies and it’s vital that we as an industry recognise that confusion is created by overly-complicated product names and policies.
“Being straightforward in the language we use will lead to better understanding and knowledge and therefore should lead to better product penetration, meaning fewer small businesses will be left under- or uninsured.”
Mike Hallam, head of technical services at the British Insurance Brokers’ Association, added: “Many small businesses may not realise that they can protect themselves against the risk of an action against them for professional negligence. The potential financial and reputation damage from such an action is avoidable through suitable insurance.
“Smaller businesses might not realise that professional indemnity insurance is useful to them. Insurance brokers can provide advice on the cover in what can be a complicated policy however PolicyBee’s research has highlighted that SMEs would be much better served if the insurance sector took steps to make professional indemnity insurance much easier to understand.”