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Professional Indemnity Insurance Brokers Ltd
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Running a successful estate agency is far from simple. Both buyers and sellers rightly expect you to be the expert, and more often than not you will be. But nobody’s perfect, and even the most diligent estate or letting agent is not beyond making mistakes.

Fortunately, there are ways you can cover your business from any mishaps that you might have to deal with such as professional indemnity insurance. Here we take a better look at what professional indemnity insurance is and why your estate or letting agency should be buying it.

Why you need Professional Indemnity Insurance
Of course, no estate or letting agent ever intends to give bad advice. But unfortunately, mistakes can happen every now and again.
Disgruntled clients – whether they are sellers, buyers, landlords or tenants – can feel so strongly that they may take legal action against your firm in a bid to claim for compensation, lodge a complaint to a property ombudsman, your professional body, or even to the local press.

A recent survey from Deloitte showed that 41 per cent of respondents who had experienced a reputational risk event, reported loss of revenue as having the biggest impact on their business. So it’s essential that every precaution is taken to protect the financial health of your business, should you make any costly errors. This means taking out a professional indemnity insurance policy to ensure that you are not left to foot the bill for any legal expenses (which can run into the thousands of pounds) that you may have to deal with.

Reputation is key
There is also a growing focus on the professionalism of estate agencies – with many calling for licensing of sales and letting agents, as well as a constant stream of criticism of ‘rogue agents’ in the media. Indeed, many renters now expect their letting agents to be a member of a professional body such as the NAEA or the RICS – both of which require Professional Indemnity Insurance to become a member. In addition to this, all agents need to belong to an independent redress scheme, such as The Property Ombudsman –which again requires that the agent has Professional Indemnity Insurance in order to join.

What to look for
But although professional indemnity insurance is incredibly important to both the reputation and financial health of any estate or letting agent, you need to be sure that the policy you’re taking out is a comprehensive one.

A comprehensive professional indemnity insurance policy should cover you for:
Compensation for awards made by The Property Ombudsman and The National Approved Letting Scheme
Consumer Protection from Unfair Trading Regulations 2008
Defence costs, such as lawyers, experts and other court costs. These are payable in addition to the policy limit
Claims made against you due to any civil liability
Compensation up to the chosen policy limit
Claims made against you caused by loss of or damage to documents
Data protection defence costs
So before you sign on any dotted line make sure your policy meets the requirements of major Estate and Letting Agent professional bodies such as the National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA).

Some examples of claims

ESTATE AGENTS
It was alleged that the agent undersold a property. Five months later it was resold for double the previous price.
Amount Paid £ 200,000
An employee of the business altered the amounts and wordings of cheques, enabling him to obtain the proceeds.
Amount Paid £ 50,000
The agent advised a client to sell a farm by auction. The client later alleged that a higher price could have been obtained if the land and buildings had been sold separately.
Amount Paid £ 45,000
A property was put up for sale by the agent but it was alleged that this had not been requested.
Amount Paid £ 40,000
The agent valued a client's house in excess of £ 500,000 and it was subsequently put on the market. In anticipation of a quick sale, the client purchased two properties. The house was overvalued, however, and after a long delay was sold for a substantially lower price. A claim was brought for the cost of bridging finance and other expenses incurred as a result.
Amount Paid £ 30,000
 
LETTING AGENTS
The agent was retained to negotiate a rent review but failed to agree an early figure so the tenants had to pay a higher rent.
Amount Paid £ 700,000
A notice to quit was served on the tenant of a farm. The firm failed to serve a counter notice under the Agriculture (Miscellaneous Provisions) Act 1976 within the time limit.
Amount Paid £ 75,000
The insured was managing a client's property and replaced a clay roof with concrete tiles. Because the property was a listed building, planning permission should have been obtained. The local authority required that the clay tiles be refitted.
Amount Paid £ 20,000
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Determining an adequate level of professional indemnity cover for your business is not an exact science and will depend upon a variety of different factors.

A good starting point is to consider what you could be sued for.....what's the worst that could happen? Think about the type of clients you work for. Is your work part of a larger project and what could go wrong.

Some clients may even tell you the level of cover they need you to have in place. It may be worth while asking them before you start a contract.

Public sector organisations and larger companies usually have a specific level of cover they will require you to have in place. Also, most professional bodies and good associations have a minimum level of cover that their members must have in order to retain membership. 

Make sure that the cover level you decide upon can pay for the worst case scenario mistake as well as enable you to pay compensation to your client and cover any legal costs.

You can download our full guidance note on this subject or please call us on 0345 251 4000.
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Good risk management is important to the success and survival of any business. Hopefully you read our popular first set of tips on this subject but if you didn't, the link is at the bottom of the page.
But here now is our second set of tips on basic risk management and avoiding a professional indemnity claim....
 
1. Understand the needs and requirements of your clients
This should include setting out precisely what work you are to carry out. If there are other professionals involved it is important to clarify how roles and responsibilities are divided up.
2. Contracts are key
Make sure that you have appropriate contractual arrangements in place. If necessary, seek independent legal guidance.
3. Avoid scope creep
If a piece of work/project you are engaged in is evolving (often referred to as scope creep) make sure that there are effective change controls in place.
4. Stick to what you know
Only provide services which fall within your scope of your expertise. Don't start straying into areas which should be the domain of other experts as it can easily lead to errors.
5. Manage expectations
If a piece of work/project is going to take longer or cost more than originally anticipated make sure that the client is aware of this and accepts the position.
6. Keep thorough records
Keep full records of key conversations, meetings and exchanges with clients and other interested parties. This is invaluable if there is ever a dispute. Many claims could be avoided if there was a complete paper trail.
7. Get the right insurance
Make sure that your professional indemnity policy is adequate for your needs. Is the policy limit sufficient for the size and value of contracts you are entering into? Are there territorial limits on the policy? Has the type of work you are carrying out been clearly explained to your insurers?
8. Don't let IT be your downfall
Have adequate systems and controls in place to protect the data you hold from both loss and theft. Specifically make sure that data you hold in relation to clients or projects is properly protected using passwords and encryption. As you will have heard in the press, cyber crime is escalating to unprecedented levels and it is important to make sure your risks are minimised.
9. Seek expert advice and guidance
Drawing upon our years of experience in dealing with professional firms, we can offer specific and tailored advice on any aspect of your risk management. Please call us on 0345 251 4000 or email support@professionalindemnity.co.uk.
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