Definition

Professional indemnity insurance (PII) is a type of liability insurance that indemnifies a firm against legal liability to pay damages to third parties for losses arising from negligent acts, errors or omissions in the conduct of its professional services. According to the RICS PII Requirements, every RICS-regulated firm must hold PII on a "claims-made" basis that meets the Society's minimum terms and conditions (MTCs) as a condition of registration.

In plain terms, PII is the financial backstop that protects clients (and the firm) when a surveyor gets something wrong. It is required by regulation, demanded by most clients, and often requested by lenders before valuation instructions can proceed.

Why this matters for Ethics, Rules of Conduct & Professionalism

  • Level 3 competence: candidates must demonstrate active involvement in arranging, renewing or advising on their firm's PII — not just describe it theoretically.
  • PII is a mandatory regulatory requirement under the RICS Rules of Conduct for Firms; a firm cannot practise without it.
  • It protects the client — the fundamental purpose of professional regulation is public protection, and PII ensures damages can actually be paid.
  • A failure to notify circumstances that may give rise to a claim can invalidate cover and trigger a disciplinary referral under Rule 3 (integrity).
  • Ethical duties attach to PII: honest proposal-form disclosures, prompt notification of circumstances, and cooperation with insurers are all obligations that sit alongside the contractual ones.

Key principles and explanation

1. RICS minimum terms and conditions

RICS prescribes mandatory policy wording that every regulated firm's PII must meet. Key MTCs include:

  • Claims-made basis — cover applies to claims made and notified during the policy period, regardless of when the work was done.
  • Each and every claim basis preferred — the limit applies to each claim rather than in aggregate (though some covers are aggregated).
  • Broad civil liability wording — covering negligence, breach of duty, dishonesty of employees, libel and slander.
  • No exclusion for "innocent non-disclosure" — genuine oversights on the proposal form cannot void cover.

2. Minimum levels of cover

RICS links minimum limits of indemnity to firm turnover:

  1. Turnover up to £100,000 — minimum £250,000 any one claim.
  2. Turnover £100,001 to £200,000 — minimum £500,000 any one claim.
  3. Turnover over £200,000 — minimum £1,000,000 any one claim.

Firms carrying out valuations for secured lending must meet additional requirements, and conduct-related exclusions cannot reduce cover below the MTC floor.

3. Run-off cover

When a firm ceases to trade, merges or is wound up, it must take out run-off cover for at least six years. This protects clients who may only discover the loss years after the negligent act. Failure to arrange run-off is a breach of the Rules of Conduct for Firms.

4. The Assigned Risks Pool (ARP)

Firms that cannot obtain cover in the open market can apply to the RICS Assigned Risks Pool, which provides temporary PII while the firm addresses the underlying issues. The ARP is deliberately expensive and limited in duration — typically 12 months — to incentivise return to the commercial market.

5. Notification of circumstances

Policies require the insured to notify circumstances that may give rise to a claim, not just actual claims. Late notification is one of the most common reasons insurers reject cover. Candidates should know their firm's notification protocol and the quarterly PII circular that usually prompts a review.

Assessor tip

If you are asked how PII responds to a valuation negligence claim five years after the report, the answer pivots on "claims-made" — it is the policy in force when the claim is made, not when the report was signed, that responds. This single point is often enough to pass the L3 question on PII.

Relevant RICS guidance and legislation

  • RICS Rules of Conduct for Firms (effective 2 February 2022) — Rule 13 (PII and complaints) requires every firm to hold compliant PII at all times.
  • RICS Professional Indemnity Insurance Requirements (current edition) — sets out the MTCs, minimum limits and run-off obligations.
  • RICS Assigned Risks Pool Terms of Reference — eligibility, duration and cost of the safety-net pool.
  • RICS Valuation — Global Standards (effective 31 January 2022, "Red Book Global") — imposes additional PII considerations for valuers.
  • Financial Services and Markets Act 2000 & FCA Handbook — insurance intermediation and regulated activities bite on firms that arrange insurance for clients.
  • Limitation Act 1980 — governs the six- and twelve-year time-limits that drive run-off requirements.

Ethics and Rules of Conduct angle

PII engages Rule 3 (integrity) because proposal forms must be completed with complete candour, and Rule 5 (competence) because an uninsured firm cannot provide competent service if damages cannot be paid. Rule 13 of the Rules of Conduct for Firms makes PII non-discretionary: no cover, no practice. Candidates who have been involved in a renewal, a notification or a broker review are well placed to evidence L3 competence.

APC questions and answers

Q (Level 1)What is professional indemnity insurance?

It is liability insurance that indemnifies a firm against damages payable to third parties for losses arising from negligent acts, errors or omissions in the provision of professional services.

Q (Level 1)What minimum limit of indemnity does a firm with £150,000 turnover need?

£500,000 any one claim, per the RICS PII Requirements for firms with turnover between £100,001 and £200,000.

Q (Level 2)What is run-off cover and how long must it last?

Run-off cover continues PII protection after a firm ceases to trade, to respond to claims arising from past work. RICS requires a minimum of six years' run-off, aligning with the primary limitation period under the Limitation Act 1980.

Q (Level 2)Explain the RICS Assigned Risks Pool.

It is a pool of last resort for RICS-regulated firms unable to obtain PII in the open market. It provides temporary cover on MTC-compliant terms for up to 12 months while the firm remediates the issues that caused it to be uninsurable. Premiums are deliberately higher than commercial rates.

Q (Level 3)A client alleges a valuation your firm produced four years ago was negligent. Which PII policy responds and what do you do?

Because PII is written on a "claims-made" basis, the policy in force when the claim is notified responds, not the policy in place when the report was issued. I would immediately notify my firm's PI insurer in writing via our broker, preserve the file and any working papers, refrain from admitting liability, decline to correspond with the claimant beyond acknowledgements, log the notification on our complaints register, and follow the Rule 13 complaints procedure. If the valuation was for secured lending I would also consider whether the lender needs to be informed separately under our client care letter.