Does a contractor need professional indemnity insurance?

Professional indemnity, along with public liability, is one of the key insurance covers that most UK limited company contractors will hold. For new contractors and even contractors that have been in the contracting game for years, we do often get asked why they need it, and what exactly it covers them against. Andy Robinson, Commercial Director at Kingsbridge Contractor Insurance( discusses this in more detail, answering some of the most common questions we get asked around this type of insurance:

Does a limited company contractor need professional indemnity?
Professional indemnity insurance will often be a contractual requirement of your recruiter or client, along with public liability and employers’ liability. This results in some contractors seeing insurance as simply a box-ticking exercise, paying little regard to what they are covered for. Read on for an overview of the situations when a contractor would need professional indemnity.

What is professional indemnity insurance?
Professional indemnity, sometimes referred to as PI insurance, is designed to protect you as a contractor from a variety of claims. This includes claims for professional negligence, loss of documents, loss of data, breach of intellectual property, defamation and libel.

In the event of a claim from your client, professional indemnity insurance would step in to help cover the compensation you have to pay, including any legal costs that are incurred in the process of the claim. Depending on your industry and the type of claim, PI claims can cost tens or hundreds of thousands of pounds, professional indemnity cover of adequate levels means you would be protected in this eventuality.

Is professional indemnity insurance a legal requirement?
There is no legislation for self-employed contractors to hold professional indemnity insurance. However, many clients and recruiters will insist that you hold a certain level of business insurance. This will typically consist of professional indemnity, public liability and employers’ liability – but there could be other cover requirements as well.

If PI insurance is stipulated in your contract and you do not hold it, this would put you in breach of your contract. You should check your contract for the requirements and any minimum level of cover that you may be required to hold. In addition, if you are a member of any professional bodies, they may stipulate that you hold professional indemnity insurance to a minimum level.

Does PI insurance provide cover for previous work as a contractor?
This would depend on the details of your insurance policy. Most insurers will offer professional indemnity cover on a ‘claims made basis’, and some insurers include ‘retroactive cover’.

What Is ‘Claims Made Basis’?
If your professional indemnity cover is on a ‘claims made basis’, this means that for the cover to protect you, it must be in place at the time a claim is made and reported. A professional indemnity claim can take months or even years to be made, so you could be left unprotected if a policy is not in place when a claim is made.

What Is Retroactive Cover?
Retroactive cover provides professional indemnity cover for previous work that you have carried out. Some insurance providers, including Kingsbridge, will provide unlimited retroactive cover for professional indemnity free of charge, whilst others may give you the option to include it for an additional premium. Some providers may also require you to provide evidence of previously held PI cover.

What level of PI cover do I need as a contractor?
Ultimately, this will be up to you to decide what level of cover you think is suitable for you and the industry you work in. As standard with Kingsbridge offers £1 million for professional indemnity cover, but other insurers may differ.

What is the excess for professional indemnity insurance?
The excess for your professional indemnity policy will depend on the level set by your insurer. Excesses can run into the thousands, so it’s always worth making sure that you would be able to pay the excess in the event of a claim.

How much does professional indemnity cost?
Just like the excess, the price of professional indemnity insurance will depend on your insurer. It will also typically factor in rating costs, such as your industry and occupation, and the level of cover that you require.


About Author:

Andy Robinson – Commercial Director
Andy joined Kingsbridge in 2013 and took on the role of Commercial Director in 2021. Coming from a background in recruitment, Andy oversees our Partnership Team who provide IR35 support and insurance solutions to our recruitment, accountancy and end client partners.

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