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Why do IT contractors need PI insurance?

Thursday 29th December
Why do IT contractors need PI insurance?

As an IT professional, the services you provide to your clients can involve a broad range of risks. You can be sued for negligence, data loss, or breach of contract simply due to a difference in understanding of a brief. Professional indemnity insurance (PI) for IT contractors helps protect your business against such compensation claims. 

1. Professional indemnity insurance can be a contractual obligation
Many contracts require professional indemnity insurance because it limits the employer’s financial risk if something goes wrong. Professional indemnity insurance demonstrates good business practice and a positive attitude to risk management, so it’s more likely to help you win contracts. Some clients may be reluctant or even refuse to hire you without it.

2. The cost of claims
A claim for an error or omission in a project could range from a few hundred pounds to hundreds of thousands. Without insurance, the cost of legal fees and compensation could leave your business financially vulnerable following a claim.

3. Minimise the risk of unforeseen events
Mistakes can happen to the most experienced contractor, and it’s impossible to predict what could happen on future projects. PI insurance covers allegations that you have made a mistake in your work and public liability insurance protects you against injury or damage caused to third parties.

4. Some employment agencies don’t provide insurance protection
If you take on a contract via an employment agency, it is unlikely that their insurance will cover the work you carry out on a project. It is essential to check this in advance, so you know whether to arrange your insurance before starting the contract.

5. Protect against the unforeseen
Having a laptop and its accessories stolen is expensive, but there is also the risk of confidential client data theft. They could claim against you for negligence and potentially a breach of data protection regulations which can result in significant regulatory penalties. The impact of late project delivery can also damage business relationships.

What does professional indemnity insurance cover?

IT Consultants’ PI typically protects your business against the following:

  • Communication errors or disputes
  • IP disputes
  • Breach of contract
  • If you unintentionally infringe on a third party’s intellectual property
  • Mitigation costs to help rectify a problem before a formal claim
  • Loss of documents and data
  • Regulatory body awards made against you
  • Cyber liability
  • Computer viruses

What information do you need to provide for a PI quote?

Insurers will generally require the following information:

  • Company Size – the number of directors and staff and the business’s gross annual income. Company Size – the number of directors and staff and the business’s yearly gross income.
  • Qualifications and experience – details regarding employee qualifications and experience help insurers produce a more accurate and speedier quote.
  • Written contracts – underwriters will be keen to see a copy of your standard terms and conditions to help assess the extent of your contractual liabilities. Insurers often expect consequential loss exclusion to be included in your contract terms and conditions to minimise financial liabilities.
  • Claims experience – Insurers require your insurance claims history because it is important to calculate risk. 

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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.

Categories: Professional Indemnity,