Professional Indemnity Insurance covers against the risks of doing a particular job. In other words, it is designed to cover a firm should it be pursued by a third party who claims to have suffered a loss as a consequence of their negligence. Such a claim could arise where, for example, a firm is accused of giving incorrect or misleading advice.
A high policy excess can reduce the annual premiums a firm has to pay and can, therefore, be an attractive option for a firm looking for ways to reduce its overheads. However, this will involve the firm taking on an increased level of risk and, therefore, the Financial Conduct Authority (FCA) may require the firm to hold additional capital resources to protect against this risk.