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In the estate agent and letting agent world, one small mistake can cause huge financial loss. If a client of yours feels they have made a loss due to breach of contract, non-performance or professional negligence, they can sue for damages. This can be detrimental to your pocket and your reputation—even if you’re innocent.
This is why it is important that estate agents and letting agents are covered by Professional Indemnity Insurance (PII). This will cover the costs of defending the claim as well as the costs of any awards or damages paid to the claimant. Some policies cover more or less than this, so it is important to check the specifics of what a policy offers.
What is Professional Indemnity Insurance (PII) for Estate Agents
Professional indemnity insurance is a commercial policy that protects those who give advice or provide a professional service—including estate and letting agents—in the case that a client is unhappy with their work.
Another benefit of getting PII is that you can be a member of NAEA (National Association of Estate Agents). NAEA Propertymark is a professional body for estate agents that ensure high standards of practice, higher than the law requires. Being an NAEA member is great for the reputation of an estate agent and will most likely improve your client base—having PII is required to become a member.
What Level of Cover Should I Get?
This is a personal decision, as everyone deals with different types of property. Start by thinking: what the worst-case scenario is, what is the most costly mistake you could possibly make? While you, of course, don’t want to overpay for too much coverage, it is usually better to be overcovered than undercovered.
NAEA members are required to have a minimum of £100,000 coverage. Members that are residential letting agents require a minimum of £150,000. Unless your annual fee income is greater than £150,000 then the minimum coverage is upped to £500,000.
A policy can cover (not limited to):
- Intellectual property infringement
- Loss of documents or data
- Negligent misrepresentation or misstatement
- Employee dishonesty
- Virus transmission
- Breach of confidentiality
- Failure of third-party equipment
It is important to check a policy’s specific wording around what they do protect and what they don’t (e.g. exclusions), to avoid any nasty surprises down the line. The level of cover (both fee and specific claims) are two of the main factors that determine the price of the insurance.
There are two types of indemnity policy:
In the aggregate
This type of policy will cover a specified amount for all claims during a period.
For example, if a policy has £100,000 cover in the aggregate and you make two claims that combined equal £100,000, you are covered. However, if you make a third claim you will no longer be covered as the £100,000 cover has been used.
Any one claim
This policy does the opposite. The specified amount covers per claim, rather than the claims combined total.
If your policy has £100,000 cover for any one claim, you can make as many claims as you want with a maximum of £100,000 per claim.
An Example of PII For Estate Agents
Back in 2002, John D Wood sold a cottage in West London on behalf of the Queen’s Godson, Michael-John Knatchbull, for £1.5 million. A few months later, Knatchbull claimed the three-floor mews cottage was sold for less than it was worth.
This was because a few days after selling his cottage, he read that his neighbours had got an offer of £1.8 million for their cottage. This meant John D Wood was in breach of duty as they failed to inform Knatchbull about the bid on their neighbours house.
The judge found that there was a 66% chance Knatchbull would have been able to sell the house for £1.7 million. After deducting commissioning fees, John D Wood had to pay £120,000 in damages. This isn’t including court fees which could have been tens (or hundreds) of thousands of pounds.
How Much Does Estate Agent Insurance Cost?
The cost of professional indemnity insurance for an estate agent can be anything from £9.50 a month up to tens of thousands a year. For estate agents, 0.15% to 5% of turnover should be expected to pay PII.
|Estate Agent Insurance Company||Price||Professional Indemnity Coverage||What type?|
|Chiswell Insurance||Annual: £99.42 Monthly (Min. 10): £11.94||£250,000 Excess: £500||Any one claim|
|Annual: £99.81 Monthly (Min. 10): £11.98||£250,000 Excess: £250||Any one claim|
Finsbury Insurance Group
|Annual: £100.20 Monthly (Min. 1): £17.02 Monthly (Min. 9): £12.02||£250,000 Excess: £250||Any one claim|
|Annual: £140.02 Monthly (Min. 1): £21.00 Monthly (Min. 9): £16.00||£250,000 Excess: £250||In the aggregate|
These quotes are made for a sole trader, in London, with 2-3 years of experience and a turnover of £25,001-£50,000 over the last 12 months.
Taking a glance at the table, you can see Chiswell provides the lowest annual fee. And all offer the option of monthly payments, which may be more beneficial to businesses who cannot easily pay the annual premium upfront.
It is also important to note, Chiswell has the highest level of excess. This helps lower the price of the insurance. However, if a claim is made, this may mean the policyholder has to cover more of the costs of the claim.
It is also apparent that Hiscox, despite being the most expensive, technically provides less cover as the policy is ‘in the aggregate’. So why would you choose in this case? This is when you must dive into the policy wording.
For example, Hiscox provides cover for past projects. Meaning if someone makes a claim against you for a mistake you made before getting insured, Hiscox will have you covered — not every policy (e.g. Maltings) will provide that.
The level of cover may vary. Ensure to check each individual policy.
Hiscox is also a very reputable company with a 4.7/5 star rating on Trust Pilot. If this is something you value, this may be something you want to consider.
There are many factors that will affect the cost of professional indemnity insurance. Such as:
- Level of cover
- Claims history
- Number of (if any) employees
- Business structure
What Insurance Does an Estate Agent Need?
Professional Indemnity is the key insurance that estate agents need. However, estate agents face other types of risk and may need more coverage. For example, employers' liability insurance is required by law if you have employees. This isn’t the only additional insurance you may need as you can see below:
Public liability is considered a must-have for anyone that has in-person dealings with the public. It will cover the legal costs and any compensation costs if a third party’s property is damaged or if someone is injured and they blame your business.
Example: You accidentally leave a client’s side gate open and their shed is burgled, leading to a damaged shed door and lost property.
Employers' liability insurance covers claims made by employees after they fall ill or are injured because of their work. It is legally required you have this insurance if you employ anyone.
Example: An employee falls over at a house viewing and breaks a bone
This insurance will cover loss of income and extra working costs if a disaster leaves you unable to work normally. Business interruption insurance will cover the costs of moving office. It is important to note, that often only physical disasters are covered. Meaning pandemics are not covered.
Example: Your office floods, leaving it inhabitable
Directors’ and officers' insurance will protect the bosses of a company from claims brought to them by shareholders, investors, employees, regulators or third parties. These claims would be accusing the directors and officers of a breach of duty.
Example: If the director makes a defamatory statement against one of the company’s partners
Business use car insurance covers privately-owned cars for certain aspects of work-related driving, such as travelling to clients and between different work locations. The type of work-related driving you do determines which 'class' of business use you need, and you can extend cover to include co-workers or employees.
Cyber insurance covers you against the costs of cybercrime. A recent government survey reported that the average cost of a cyber security breach for a UK business was £4,180 in 2019 (£22,700 for larger companies), the cost of a cybercrime can be debilitating for companies both large and small. As a result, many companies include a cyber insurance policy as part of their overall business insurance coverage.
Office contents insurance provides financial protection for your business’s equipment, tools, inventory, and computers in the case they are damaged. It will help keep your business up and running if you're the victim of theft or a disaster like fire or flooding.
Commercial building insurance will protect a business’s commercial property (i.e. your business or a tenant’s). A commercial building policy can protect against risks like fire, flood and theft, covering repair or rebuild costs in case disaster strikes.