While there are many good points to be being self-employed – being in control of your time, choosing who you work with, pursuing projects that spark your interest – there are also a whole host of responsibilities that come with it. One of the most important of these responsibilities is making sure you’re correctly insured, including Professional Indemnity cover.
Most contractors may never need it but the risk of a claim is always present. If you work for yourself and you don’t have insurance, you could be bankrupted by the cost of defending yourself (let alone any damages you may be liable to pay) should your services cause a client any financial loss – usually through simple human error.
What can you do to protect yourself and your business from such a potentially devastating peril of contracting?
What is Professional Indemnity insurance?
Contractor Professional Indemnity insurance covers the cost of legal fees where it is alleged that a client has suffered a financial loss as a result of a contractor's error, omission or negligence. It also extends to provide further cover for compensation, or damages payable, to rectify those errors. Put simply, this insurance is a contractor’s safety net; it protects them from business-crippling claims if things happen to go wrong.
Contracting is a high-risk occupation, with ever-increasing possibilities for professional error. Invariably, mistakes will be made, and disputes will arise. Contractors should, therefore, understand the risks they face, how their business may be affected, and insure accordingly.
What does Professional Indemnity insurance cover?
The main things that Professional Indemnity covers are:
- 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).
Even if the mistake isn’t your fault, you could still wind up with a PI claim that you have to defend. Let’s have an example:
You’re an IT software engineer, travelling back from a client meeting. You leave your laptop bag in the carriage rack and, at some point during the journey, it gets stolen. While your laptop is password protected, you were also carrying a hard drive full of sensitive customer data that could be used by the thief. Your client has to inform their customers of the breach, who consequentially leave in droves – costing your client a loss of business worth over £10,000.
Despite the breach not being your fault directly, you were still responsible for the data at the time of the incident. Your client would most likely look to claim that business loss back from you. Could you afford the defence and damages costs for such a mistake without insurance?
What professions usually need Professional Indemnity insurance?
There’s no clear cut list of professionals that may need PI, but the above cover can be applied to pretty much every industry in the contracting spectrum. Large claims could easily bankrupt smaller contractors and all it takes is a momentary lapse of concentration to cause far-reaching repercussions.
Some professions are even required to have Professional Indemnity insurance by their professional bodies or regulators. Much like clients that write PI cover into contracts as a condition, they want to protect themselves from the cost of human error.
Professions that may be required to have PI insurance by their professional bodies include:
- Energy Sector contractors
- IT contractors
- Media and creative contractors
- Financial and business consultant
The requirement for PI by a regulator is also there to protect you against fictitious claims - not a nice prospect to consider, but you’d have to defend yourself regardless.
How do I know if I need Professional Indemnity insurance?
PI claims can be financially crippling for those on the receiving end, so it’s usually a case of better safe than sorry. However, if any of the following apply to your business, you run the risk of a claim:
- You provide advice and consultancy
- You provide an expert service
- You handle sensitive or personal information
- It’s required in your client contract
- It’s required by your professional body
You can read more about why each of the above affects your risk of a PI claim here.
Am I at risk of a Professional Indemnity claim?
The short answer is if you’re a contractor and you’re capable of making mistakes, then yes there is always some risk of a PI claim present.
Realistically, those that handle sensitive data on a daily basis are most at risk of a claim, so it’s essential for the likes of IT contractors, accountants, energy sector contractors, and management or financial consultants to make sure they’re covered. Their mistakes have the potential to cause far-reaching financial repercussions.
That said, the general rule is: all contractors should consider having a PI policy ready. 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.
For more information on how Professional Indemnity insurance can help your business, feel free to visit our knowledge hub where you’ll find helpful articles on everything from contractor guides to IR35 news. If you’re ready to begin protecting your business with a PI insurance package, find out about the PI insurance we offer here.