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WHAT IS PROFESSIONAL INDEMNITY INSURANCE?

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Read on for a guest blog by Martin Baxter of Kingsbridge Contractor Insurance. Kingsbridge provides insurance for contractors, with their package insurance policy including professional indemnity and public liability.

 

As a limited company contractor, you’ve probably already heard of professional indemnity insurance. But, what is it? What exactly does it provide cover for and why should you consider having it?

If you are new to contracting, you may have been told by your recruiter or client that you need to buy professional indemnity insurance. You may have even purchased cover before, but let it lapse between contracts. However, this could leave you unprotected and in a sticky situation if a late claim comes to light. Read on to find out what professional indemnity provides cover for, and why you should consider holding it.

 

What is professional indemnity?

Professional indemnity insurance is designed to give businesses, contractors and sole traders protection against claims of professional negligence. This can include things like making a mistake and giving bad advice, as well as loss of data, loss of documents, breach of intellectual property, defamation and libel.

Martin Baxter

In the event of a claim made against you, you could be liable for tens or even hundreds of thousands of pounds. When working through your limited company, you would not be protected in the same way as an employee of a company, so you should consider insurance to ensure you are protected from a potentially costly mistake. Ultimately, all insurances are there to protect you in case the worst does happen – and this is no exception with professional indemnity.

 

Why should contractors hold professional indemnity?

Professional indemnity is not a legal requirement, however, many clients and recruiters will stipulate that holding insurance is required as part of the contract. They may also require you to hold public liability insurance and employers’ liability cover. You should check your contract to see what cover is required. The insurance requirements are in place to protect the end client if a mistake does happen, and to not hold the required insurance would put you in breach of your contract.

While it may be tempting to only hold insurance when you are in the midst of a project, it’s worth bearing in mind that public liability insurance is usually on a ‘claims made’ basis. This means that you would only be covered if you have a live insurance policy in place when a claim comes to light. Professional indemnity claims can take time to be pursued, so it would be worthwhile considering holding cover even after the work has finished.

In addition, holding business insurance can serve as an IR35 indicator, as it is seen by HMRC as a pointer of being genuinely self-employed, thus helping to point towards an outside IR35 status determination.

 

Professional indemnity insurance claim example

Chris is an IT contractor, who is working through his limited company and has been contracted to work on a project for a retail firm. Whilst working, Chris accidentally put in an incorrect line of code, resulting in customer data being compromised, meaning the retailer must pay fines. The retailer claims against Chris’s company for the cost, but the professional indemnity Chris has means that the compensation and legal fees are covered.

 

What kind of cover should contractors look for?

When buying professional indemnity insurance, it would be worth asking yourself the following questions.

  • Are the cover limits sufficient? Your contract may stipulate that you hold a certain amount of professional indemnity cover, often this is £1 million.
  • Is the excess excessive? Would you be able to afford to pay it in the event of a claim? Some insurers will even offer nil excess.
  • Is the cover any one claim or in the aggregate? In the aggregate means that you are only covered for the total sum insured over the policy year. So, if you had £1 million of professional indemnity cover and had a £400,000 claim, this would leave £600,000 in your pot for the rest of the term. On the other hand, any one claim means your cover limit is applied to each and every claim
  • Are you covered for previous work? You should check if the cover includes ‘retroactive cover’. This means that you would be covered for claims for previous work that you have carried out.

Of course, all insurers have different limitations, so you should check the terms and cover details with your insurer. Kingsbridge Contractor Insurance includes the above cover as standard with their packaged policy.

Wealth Management

DIGITAL NATIVES CAN BE THE DRIVING FORCE BEHIND THE BIGGEST TRANSFORMATION IN INSURANCE

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Sam Vickerman, Practice Director, Insurance & Retail, Grayce

 

Often referred to as digital laggards in the finance sector, insurance companies are renowned for being slow to adopt new technologies. Held back by legacy systems and old-fashioned business models, the industry also lacks the technology talent required to speed up innovation. According to Deloitte, just 4% of millennials want to work in insurance, with many more being drawn to exciting roles in technology, consulting or other financial companies instead. Insurtech start-ups are beginning to emerge, who are focused on developing software for the sector. Yet the gap between these fledgling firms and traditional insurance companies is growing. Exacerbating the problem further is the impact of Covid-19 on the sector, with customer demand for more digital products and services growing. If insurance companies are to prosper in the post-pandemic world, they need to find ways to adopt digital technologies at a faster rate. And that must start with changing the next cohort of workers’ perception that the industry is dull and dusty and finding ways to attract and retain this talent.

 

Attracting digital native talent

Immersed in technology since birth, millennial and Gen Z workers are confident in and capable at using digital tools – it’s argued that the brains of digital natives are actually wired differently to ‘digital immigrants’ (those who have adapted to the new world as adults), due to vastly different kinds of early learning experiences. In the workplace, this translates to differing communication and information-gathering styles, and according to Forrester, these workers prefer greater mobility, tech autonomy and software diversity compared to their older counterparts. Insurance firms must find ways to tap into this talent pool more widely if they’re to digitalise their operations and compete with the emerging start-ups in the sector, and they should start by employing individuals that show a curiosity and willingness to continuously learn. These individuals can act as digital champions for their organisations, helping them to embed the latest technologies into their operations and shape the future of their business.

Sam Vickerman

Here are a handful of those technologies that could drive widespread transformation of the sector.

  • Highly personalised services through IoT and social media – traditional risk assessment relies on datasets that consider a range of factors such as the customer’s age, gender, location, marital status and so on. But today, endpoint devices and social media can provide much more personal insights into the individual – in a model that is beneficial to both the insurer and the customer. Wearables, for instance, provide deep insights into a person’s physical health, measuring factors such as blood pressure, temperate and number of steps per day. The business gets a more accurate risk assessment, and the customer gets a more tailored policy that suits their needs. This model is growing in popularity, with a recent study by Accenture finding that more than three-quarters of consumers are willing to share their personal data in exchange for more personalised insurance offers and cheaper coverage.
  • Digitising paper records – the insurance sector is a heavy user of paper-based records, with firms typically keeping thousands of files in paper archives, gathering dust. If files are digitised, analysed and stored in the cloud, documents can be automatically reviewed, helping to reduce inconsistent information or errors.
  • Internal workflow automation with RPA and Machine Learning – automation enables firms to reduce the time spent on routine paperwork and administrative tasks, freeing up employees to focus on more creative, value-add work with their clients. Robotic Process Automation (RPA) can help address repetitive work, including preliminary assessment of each claim, data entry and payments. In turn, this results in more efficient decision making, reduced call times to customer service teams and far greater accuracy of data entry.
  • Automated resolutions through AI-powered chatbots – customer service agents spend thousands of hours on the phone, often supporting clients with simple requests. Chatbots can help automate many of these conversations, using AI to filter through the chats and route priority customers that require urgent attention through to human service agents. This can drastically cut costs in customer support and sales.
  • Blockchain implementation – according to PWC, blockchain implementation could cut costs by $5-10bn for reinsurers worldwide. Key benefits include reducing verification and validation time, eliminating errors and minimising reputational risks. Blockchain enables all required parties to be connected by smart contracts, meaning reinsurers don’t have to interact with the insurer to get access to the client’s data.

 

Dusty to digital-first

The insurance sector is in much need of a revamp and companies risk falling behind if they do not start investing in digital innovation today. However, by giving ambitious digital natives licence to research and embed new technologies, they can transform their operations and compete with new market entrants. Technology is driving several disruptive trends in insurance, such as personalisation, automation and real-time based assessments. If insurers can get digital adoption right, they will benefit from cost reduction, better communication with their customers on the channels of their choosing and more accurate risk assessment. The next generation of workers can help drive this change – shifting the perception of insurers from dusty to digital-first. It’s time for insurance companies to start investing in these individuals now.

 

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Wealth Management

ROBINHOOD’S IPO COULD TURN THE TRADING PLATFORM INTO A 35 BILLION DOLLAR CONCEPT

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  • US share and crypto trading platform Robinhood is expected to list on the Nasdaq on 29 July
  • The company will trade under the ticker HOOD
  • Stock expected to be priced between $38 – $42 per share
  • Listing would put a value on the company of around $35 billion
  • Robinhood is under the regulatory spotlight following the GameStop craze
  • UK investors can’t participate in IPO but can buy shares when trading begins

 

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

‘’There is likely to be huge interest in Robinhood’s IPO, given the swirling speculation about the company on social media forums and the media coverage the company received as it became a central figure in the GameStop craze earlier in the year.

The company was set up to help further democratise investing in the US and draw more ordinary traders into the Wall Street world. If the stock does list within the range of $38 – $42 per share, this will turn out to be a $35 billion dollar idea. But the company has come under the regulatory spotlight and that could have a big impact on the company’s future potential as an investment.

The app has come under fire for the so called ‘gamification’ of investing with the use of rewards and celebratory notifications to encourage users to trade more. Its strategy is paying off with the number of accounts increasing to 18 million by March this year from 7.2 million in March 2020.

The way that Robinhood makes money has also come under intense scrutiny. Instead of charging investors a dealing commission, it puts clients’ trades through certain companies, and in return, these companies pay Robinhood a fee. It’s these charges, called “payment for order flow” that make the company most of its money.

Even though each fee is a tiny fraction of a cent per share traded, it soon adds up. Over the last year Robinhood made $720m from payment for order flow – three quarters of its total revenue. That rose to 81% of revenues in the first 3 months of this year.

But this model is now under review, with the US regulator, the Securities and Exchange Commission (SEC) planning to look again at the stock market trading rules, which could include payment for order flow.

The concern is that it stops investors from getting the best price for their deals and could create a possible conflict of interest between firms like Robinhood and their clients. Firms promise to trade at, or at better than, current market price. But the question remains about whether, under the system, there are even better prices available with other market making companies, which they don’t use. If rules do change this could be a big worry for the firm’s revenues and future investors in the company. It was enough for Robinhood to highlight a potential ban on payment for order flow as a key risk in its prospectus.

This isn’t the first time Robinhood has come under fire from US regulators. In December last year, Massachusetts securities regulator accused Robinhood of gamifying investing. The case included a customer, with no investment experience, who traded 12,700 times in six months. More recently, the Financial Industry Regulatory Authority fined Robinhood a record $70m. It said the company had caused “widespread and significant harm” to investors.

And there could be more storms gathering on the horizon. The Robinhood prospectus named seven US state and federal bodies investigating the company. All this could add up to potential issues down the line, so investors need to take such risks into the equation when they consider investing right from the start of Robinhood’s listed life.

If Robinhood can bat away these issues, or if the SEC decides not to change the current rule book, the groundswell of support among day traders the company has already gathered could potentially accelerate, leading to further growth for the company.’’

 

How to buy Robinhood shares

UK investors can’t take part in the Robinhood IPO. But HL clients should be able to buy Robinhood shares once they start trading on the US stock market which is expected to be on 29 July. If you believe in the long-term prospects for Robinhood and want to buy the shares, you first need to choose an account to hold the shares in. Once listed on the stock market, you can hold Robinhood shares in a general investment account (Fund and Share Account), ISA or Self-Invested Personal Pension (SIPP). Before you buy your first US share with HL, you’ll also need to complete a W-8BEN form.

On the first day of trading, it can take several hours to get a live market price. During this time, it isn’t possible to buy or sell the shares. Investors will be able to deal the shares through HL once there’s a live market price, and trading and settlement has been confirmed by the UK clearing and settlement service. This could be after the shares have already started trading on the stock exchange.

 

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