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Professional Indemnity Insurance for Contractors

Why is Professional Indemnity Insurance so important for contractors?

If you’re working as a freelancer or contractor you would be familiar with the term Professional Indemnity insurance (also known as Professional Liability insurance). While many of the contractors we work with view PI insurance as an expensive and unnecessary overhead, it’s one we as a recruitment company require from our freelancers. Together with our compliance expert, Brian Daly, we would like to explain why…

To start, let’s clarify Professional Indemnity insurance:

PI insurance is a form of liability insurance that helps protect contractors and freelancers against bearing the full cost of defending against a claim of negligence made by a client. Specifically, it covers the following points on the part of the contractor:

  • alleged failure to perform
  • financial loss
  • error
  • omission in the service

Why should you take out Professional Indemnity insurance?

Although many contractors feel confident in the quality of their work, very few (if any) professionals are completely immune from making mistakes. Accidents can happen. As a busy professional, juggling several tasks and meetings, it is almost inevitable that at some point, actions could be performed or advice could be given that are short of client expectations or fail to take in all potential consequences. For example, data and documents belonging to a client or business can accidentally go missing, or can be inadvertently damaged or destroyed whilst in the care of a professional. Any business providing consultancy services is vulnerable to claims of negligence and professional indemnity insurance will help protect you if a claim is brought against you, whether or not it is founded.

When do you need PI insurance?

Being a freelancer carries certain obligations and responsibilities. Specifically, you may need professional indemnity insurance if:

  • You provide an advisory service to clients
  • Your client requires you to handle data belonging to them
  • You are responsible for a client’s intellectual property
  • You offer a professional service and could be challenged on your work

As a contractor working on multiple roles, either simultaneously or consecutively, you should have PI insurance at all times. The reason being that in order for a contractor to be covered by their PI insurance against any claim made, they need to have the insurance in place at the time the claim is made. So if you had cover in force only for the duration of your contract and a claim from your client is submitted 2 weeks later, you would unfortunately not be covered and be liable to pay the full amount claimed against you. Annual cover ensures your protection at all times, even during any temporary unemployment between positions.

Which PI insurance is best for me?

There are several companies that offer liability insurances. The amount of cover that is appropriate for you can vary depending on the nature of the role that you perform. There is a level of cover that is conventional for most lines of business. The level of PI cover normally works in one of two ways:

  • Each and every claim cover– this means that the indemnity limit applies separately to each claim that is made under the policy
  • Aggregate cover– the limit of indemnity would apply as one single amount for all claims made in each period of insurance

We’ve seen that the business environment is becoming increasingly litigious, especially in the highly-regulated life sciences industries. Besides being one of Panda’s own requirements, more and more of our clients and RPOs are seeing PI insurance as a pre-requisite for freelancers. Professionals without it can be put at a competitive disadvantage. For most people, the notion of not insuring themselves against the risk of destruction of their home would be unthinkable and many freelance professionals are beginning to have the same attitude about the risk of destruction of their business. It’s almost certain that within a few short years PI insurance will be a strict requirement for all freelance professionals.

In order to help our contractors, Panda has set up insurance agreements with specific insurance companies specialized in PI and other work-related liability insurance. For further information, advice and to find out how you can save up to 40% on your insurance, contact us!

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