If you’re a contractor, freelancer or are self-employed, you’ll most probably need Professional Indemnity insurance at some point in your career. Many clients will request it as part of a contract and it’s prudent to take cover out, even if you only hot desk once or twice a year – all it takes is one instance of human error to fall foul of a claim.
What does Professional Indemnity insurance cover?
We’ve written before about what PI insurance is (read here) but now we want to talk about who needs it.
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).
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.
When it comes to PI protection, it’s a case of better safe than sorry.
How do I know I need Professional Indemnity insurance?
It’s always advisable that you protect yourself and your business against PI claims no matter how you do your work, but here are some of the more typical situations in which you would need PI insurance.
You provide advice and consultancy
Providing poor or incorrect advice can be seen as a failure to meet an expected standard of work, which could easily grow into an expensive professional negligence case. This, in turn, could lead to compensation claims should the client incur costs because of your advice.
For example, you advise certain efficiencies as a Business Consultant on a huge project to save costs, but the shortcuts you suggest actually triple expenditure, causing your client to have to choose between taking a catastrophic loss or charging their end-client at least double the quoted fee.
Neither of those are viable options for anyone with a shred of business sense, so they would opt to file a PI claim against you, the provider of the services and cause of the loss, instead.
You provide an expert service
Making even a small mistake in a design, plan or calculation can be devastating for the client, depending on your profession. If you make a living by providing an expert or specialist service, chances are your client is putting a huge amount of trust in your work; a simple case of human error could result in a substantial PI claim.
Architects are the best example of this. Miscalculations in building plans can not only cause project timings - and budget - to overrun significantly, but can make homes unsafe to live in. Even if the mistake is inconsequential at first, you could be subject to a PI claim years down the line so it’s best to research the type of cover you need if you’re in this type of work.
You handle people’s information
With the introduction of GDPR last year, there’s never been more scrutiny on how client information is managed. Add in enormous demand for data handling plus rapid turnaround times and it makes for often chronically overworked IT contractors. If a mistake is made (a data breach, mishandling client documents, missing deadlines), the results can catastrophic.
As an obvious example, you’re an independent software programmer working with the NHS. A fault in your code leaves thousands of patient records unprotected for over 48 hours, during which time huge amounts of sensitive data are stolen. This scenario has happened time and time again in a variety of industries and could easily bankrupt even a larger contractor without cover.
It’s also worth remembering that a breach of data protection could be something as simple as writing down client bank details on a scrap of paper and leaving it on your desk. You don’t have to work with data to cause a data breach.
It’s required in your client contract
While it’s not illegal to work without it, it’s considered an industry formality that you, as a contractor, obtain Professional Indemnity insurance. Clients will want to ensure that any errors made lie with the contractor that provided the services, and guarantee that the contractor is legally responsible for correcting them.
Understandably, they don’t want to pay for any mistakes they aren’t liable for, which means that clients are often reluctant to hire a contractor who doesn’t have the correct Professional Indemnity cover. This is why, more often than not, they include the need for PI cover within their contract.
Your professional body requires it
Some professions are 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:
- Chartered surveyors
- Financial advisers
- Healthcare professionals
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.
Am I at risk of a Professional Indemnity claim?
The short answer is if you’re working in any of the aforementioned professions and are 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 professions like software developers and accountants to make sure they’re covered. Their mistakes have the potential to cause far-reaching financial repercussions.
Other, less obvious high-risk professions are business or management consultants, architects, and media professionals. A contractor that offers any of these services could cause their clients huge losses if their advice or designs are not up to industry standard.
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.