Professional Indemnity Limits for Tech Companies: Determining Adequate Cover

Align your professional indemnity limits with client requirements, contract values and actual risk exposure without over-insuring.

Professional indemnity limits for UK tech companies typically range from £500,000 for sole developers to £5 million for scale-ups.

Client contracts drive minimum requirements, with enterprise clients requiring £1 million to £5 million cover. Recommended limits: 2 to 3 times largest annual contract value, or 20% to 50% of annual revenue for companies without dominant contracts.

Single limit policies cover all claims in a policy year; aggregate limits provide multiple claim protection.

Underinsurance leaves personal assets exposed when claims exceed limits. Cover costs increase 40% to 60% when doubling limits from £1 million to £2 million. Annual review essential as contract values and revenue grow.

Most tech founders set their professional indemnity limit by asking their broker “what do most companies like us buy?” That approach works until you discover your largest client requires £2 million cover and you’ve only got £1 million.

But here’s the deeper issue: It’s not just about satisfying client requirements, it’s about protecting everything you’ve built when a single project failure triggers claims that exceed your policy limit. The difference between adequate cover and underinsurance is whether you lose your business or just pay a higher premium.

CMS’s review of the UK professional indemnity market highlights a clear upward trend in both the size and complexity of PI claims. Their analysis notes that insurers are facing more high‑value disputes, driven by escalating legal costs, larger financial losses, and an increase in multi‑party litigation. The report also emphasises that PI exposures are becoming more severe across multiple professional sectors, reflecting a market where significant claims are no longer exceptional but increasingly common

Your limit needs sizing for the worst case scenario, not the typical claim. Because it’s the outlier claim, the one where your architectural decision caused cascading failures across your client’s entire operation, that determines whether your insurance actually protects you.

How professional indemnity limits actually work

Your limit represents the maximum your insurer pays for all claims and defence costs during your policy period.

Most policies operate on an “any one claim” basis with an aggregate limit. This means each individual claim can reach your stated limit, and the aggregate determines how much total claim exposure the insurer accepts across all claims in the year. A policy with £1 million any one claim and £2 million aggregate covers up to £1 million per claim, with total exposure capped at £2 million if multiple claims arise.

Defence costs typically erode your limit. When your insurer spends £30,000 defending a claim, that reduces the amount available for settlement. If your limit is £1 million and defence costs reach £150,000, only £850,000 remains for compensation. Some policies offer defence costs in addition to the limit, which provides better protection but costs more.

The limit applies per claim, not per client. If one project triggers claims from three different parties, that’s potentially three separate claims against your limit. A data breach affecting multiple clients could generate multiple claims in a single incident, each covered up to your limit until aggregate exhaustion.

Understanding this structure matters when comparing quotes. A £1 million any one claim policy with defence costs inclusive provides less protection than a £1 million limit with defence costs in addition, even though both describe themselves as £1 million cover.

Client contract requirements drive your baseline limit

Your largest clients determine your minimum acceptable cover.

Enterprise procurement departments routinely specify professional indemnity requirements in their supplier terms. Technology contracts typically require:

£1 million minimum for contracts under £100,000. This baseline satisfies most corporate procurement policies for lower value software development, consulting and managed service arrangements.

£2 million for contracts between £100,000 and £500,000. Mid-market clients and larger projects justify higher protection. Many enterprise clients set £2 million as their standard requirement regardless of contract value.

£5 million for contracts exceeding £500,000 or involving critical systems. Large implementation projects, enterprise software and anything affecting financial systems or personal data typically attracts £5 million requirements.

Some clients specify limits as multiples of contract value, typically requiring cover at 2 to 5 times the annual contract value. A £200,000 annual contract might require £1 million cover, whilst a £1 million contract could require £5 million limits.

This creates a practical problem. If 90% of your clients accept £1 million cover but one major client requires £5 million, you need £5 million cover to service that client. You can’t maintain separate policies with different limits for different clients. Your professional indemnity certificate requirements documentation must satisfy your most demanding client.

Decision framework: Calculating appropriate limits for your business

If your largest annual contract value is under £50,000 → Start with £500,000 cover. This satisfies most SME clients whilst keeping premiums affordable. Review when bidding for larger contracts.

If your largest contract is £50,000 to £200,000 → Secure £1 million cover. This meets typical enterprise baseline requirements and provides reasonable protection relative to project values.

If you’re bidding for contracts worth £200,000 to £500,000 → Move to £2 million limits before submitting proposals. Enterprise procurement won’t negotiate insurance downward, and discovering inadequate limits after you’ve invested in the sales process wastes time and damages credibility.

If your contracts exceed £500,000 or involve critical systems → Consider £5 million cover. Financial services clients, healthcare providers and anyone handling sensitive data typically require higher limits regardless of contract value.

If you have no dominant contracts but annual revenue exceeds £2 million → Calculate limits as 20% to 50% of revenue. A £3 million revenue business should consider £1 million to £1.5 million cover even without specific client requirements, because aggregate claim exposure across multiple clients justifies higher protection.

The real question isn’t what you can afford to pay in premiums, it’s what you can afford to lose when claims exceed your limits. Every pound of claim above your policy limit comes from your business assets and potentially personal wealth if claims pierce the corporate veil.

The cost of increasing professional indemnity limits

Premiums don’t scale linearly with limits. Understanding the pricing structure helps you optimize coverage.

Doubling from £500,000 to £1 million typically increases premiums by 40% to 60%, not 100%. The insurer’s claims handling costs and policy administration remain similar regardless of limit, so higher limits cost proportionally less per pound of cover.

Moving from £1 million to £2 million adds approximately 50% to 70% to your premium. A business paying £1,200 for £1 million cover might pay £1,800 to £2,000 for £2 million.

Reaching £5 million cover typically costs 2 to 2.5 times the £1 million premium. That same business would pay £2,500 to £3,000 for £5 million limits, though this varies significantly based on revenue, work type and claims history.

Higher limits provide better value per pound of cover. If £1 million costs £1,200 annually, you’re paying £1.20 per £1,000 of cover. At £2 million for £2,000, the cost drops to £1 per £1,000. At £5 million for £3,000, it’s just £0.60 per £1,000.

This pricing structure means increasing limits to meet client requirements costs less than you might expect. The premium difference between barely adequate cover and properly protective limits is often just £500 to £1,000 annually, whilst the protection difference is millions of pounds.

What happens when claims exceed your professional indemnity limit

Your policy stops paying once the limit exhausts, leaving you personally exposed for any excess.

Consider a scenario where your software error causes a client’s financial reporting system to fail during their year-end audit. The client claims £1.8 million in losses comprising remediation costs, audit delays, regulatory investigation expenses and reputational damage. You have £1 million cover.

Your insurer pays the first £1 million, including defence costs. You’re personally liable for the remaining £800,000. Your limited company structure provides some protection, but directors can face personal liability for negligent acts, and clients often pursue directors personally when company assets prove insufficient.

The exposure extends beyond the immediate claim. Once a large claim is known in your sector, other clients review their own projects with you. If they identify similar issues, additional claims surface whilst you’re already dealing with one claim that exceeded your limit. Multiple claims in a single year can exhaust aggregate limits, leaving subsequent claims completely uninsured.

Banks and investors notice large uninsured claims. If you’re fundraising or seeking working capital facilities when a claim exceeds your limits, that uninsured exposure affects your valuation and borrowing capacity. The financial impact extends beyond the direct claim costs to affect your entire business trajectory.

Increasing your limit before renewal costs a higher premium but is infinitely preferable to facing uninsured exposure after a claim arises. Once you notify a claim, you can’t increase limits retroactively to cover that claim.

How professional indemnity limits interact with other policies

Your professional indemnity limit sits alongside other insurance covers, each with separate limits.

Cyber insurance provides separate limits for data breaches, system failures and cyber incidents. If you have £1 million professional indemnity and £1 million cyber cover, a data breach affecting clients could potentially access both policies depending on whether the claim alleges professional negligence or cyber incident. This isn’t double recovery, rather it’s two separate policies responding to different aspects of the same incident.

Product liability operates with distinct limits for physical harm and property damage caused by your software. If your code controls industrial equipment and a malfunction causes physical injury, product liability responds rather than professional indemnity. Having £5 million product liability and £2 million professional indemnity provides layered protection depending on claim type.

Employers’ liability is legally required but separate from professional indemnity. If an employee suffers injury or illness arising from their work, that’s employers’ liability territory with its own £5 million minimum limit. Professional indemnity covers client claims, not employee claims.

The coverage combination you need depends on your work type. Pure software development might justify higher professional indemnity limits with modest cyber cover. SaaS businesses handling customer data need substantial cyber limits alongside professional indemnity. Hardware developers require strong product liability in addition to professional indemnity.

When to review and increase your professional indemnity limits

Annual renewal provides the natural review point, but several triggers justify mid-term increases.

Contract opportunities requiring higher limits demand immediate action. If you’re tendering for a contract requiring £5 million cover and currently hold £2 million, secure higher limits before submitting your proposal. Clients won’t wait whilst you arrange insurance, and they definitely won’t negotiate their requirements downward.

Revenue growth of 50% or more since your last renewal justifies limit review. Your claim exposure scales with business size, and limits that protected a £500,000 revenue business adequately may leave a £1 million revenue business underinsured.

Moving into higher risk work changes your exposure profile. If you’re shifting from building internal tools to creating software sold to multiple end users, from consulting to product development or from domestic clients to international markets, your claim potential increases substantially.

Claims experience triggers mandatory review. If you’ve had one claim approach your limit or multiple smaller claims, renewal is the time to increase protection. Insurers may require higher limits or impose higher excesses as claims conditions, but maintaining adequate cover remains essential.

Most professional indemnity for software companies requires active limit management as businesses grow. The limit you needed at startup becomes inadequate within two to three years for most successful tech businesses.

External Resources

UK Government Digital Marketplace – G-Cloud Buyers Guide. https://www.gov.uk/guidance/g-cloud-buyers-guide. Official government procurement framework, sets mandatory insurance requirements for suppliers.

 

Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.