There are certain insurances that all contractors should consider; amongst them is Professional Indemnity (PI) insurance. While this cover is useful to contractors and freelancers across all industries, there are certain professions within the self-employment sphere that have a greater risk of a claim than others. Increasingly, IT professionals are choosing to work for themselves, and they may not be aware of the PI risks they face.
From coding errors to overrun deadlines, there’s a multitude of reasons why an IT contractor could fall foul of an insurance claim. What can a PI policy protect them from?
What is Professional Indemnity insurance?
Professional indemnity insurance – often referred to as PI insurance – protects you and your business should your client allege that you’ve provided inadequate advice, services or designs. It covers legal expenses in defending the claim as well any compensation needed to fix the problem.
While you may have complete confidence in your abilities, knowledge and skill set, you’re still human. There’s always a possibility that you or a member of your team could make a mistake, which falls to you as the contractor to correct.
Luckily, professional indemnity insurance covers a range of scenarios, including:
- professional negligence (i.e. making a mistake in a piece of work for a client);
- loss of documents or data;
- unintentional breach of copyright or confidentiality;
- defamation and libel;
- loss of goods or money (your own or for which you are responsible).
How can Professional Indemnity protect IT contractors?
As previously mentioned, all contracting professions run the risk of a PI claim so what makes IT contractors particularly susceptible?
For one, IT contractors handle huge amounts of personal data from project to project; if a mistake is made (a data breach, mishandling client documents, missing deadlines), the results can be far-ranging and costly. For example, you could have an external hard drive, full of client’s financial data, stolen whilst on the train. Should that information be used, you could be faced with having to pay damages along with court costs, which PI insurance would cover.
There’s also a good chance that it’s required as part of a contract. PI is considered an industry formality regardless of your profession – after all, clients want to make sure that it’s up to the contractor to correct any mistakes they make. This means they’re often reluctant to hire contractors that don’t have the correct Professional Indemnity cover and include the insurance as a specification in their contract.
Either way, mistakes happen and it’s best to be prepared. One instance of human error could prove costly, with a claim for an error or omission costing anywhere from a few hundred pounds to hundreds of thousands.
How do I work out how much PI insurance I need?
Imagine the worst mistake you could make in your job. Perhaps you’re an independent software programmer working with the NHS. A fault in your code could leave thousands of patient records unprotected for over 48 hours, during which time huge amounts of sensitive data is stolen.
How much would these problems cost you to set right? How much compensation for loss of business or data retrieval would you have to pay? How much would it cost you in legal fees to defend yourself at trial and how much would your losses amount to while you’re out of work, or even losing work due to a damaged reputation? That total will be significantly lower than what you should take out as Professional Indemnity cover.
With PI insurance, a limit of £1 million indemnity is typically required at the very least, with other common limits sitting at £2 million and £5 million. You’ll easily find cover starting from £250,000 (suitable for start-ups and small businesses) but we strongly advise you over-insure; if the level of cover taken out isn’t sufficient for your requirements, then you’ll be liable to pay the remaining amount.
The main things to consider whilst taking out PI are:
- The size of the client contract: the bigger the client, the higher your PI limit should be.
- Compensation claims: if you’re working with a national client, like the NHS or BBC, compensation claims are likely to be huge. If you usually work with smaller companies (building websites for local retailers, for example), then you probably won’t be faced with such a huge hit.
- Legal costs: again, the bigger the client, the more expensive the trial can become. Consider how deep your client’s pockets are and ask yourself if you can match them.
Additional notes for IT contractors
No matter how scrupulous you are in your practice, Professional Indemnity not only offers peace of mind but also makes it much easier to attain new clients.
We offer PI cover starting from just £144.00, as well as a whole suite of business insurances including IR35 Tax Investigation insurance. We also offer comprehensive IR35 contract reviews and specialist tax advice from our Head of Tax and resident IR35 expert Andy Vessey ATT.