Contractors and consultants provide professional advice and services to clients and as such, might well be liable for any mistakes or errors they may make in the course of their duties.
Why is insurance important for IT contractors?
We all face risks when working. From a simple drink spillage on important equipment to a costly coding mistake, accidents happen and when they cause damage or loss to someone, a claim may arise.
When you’re an employee, your employer is responsible for arranging business-related insurance to cover against these risks. But as a self-employed professional, the onus is on you to ensure appropriate cover is in place. As an IT contractor, business insurance is designed to protect you from the risks associated with running your business, whether you’re a sole trader, running a partnership, or a limited company, it’s important to think about the risks you face – and take steps to get them covered.
The nature of work as an IT contractor (as the name suggests) is that it is heavily contract-based. Whilst there are many benefits to working this way, this type of employment can leave you particularly vulnerable to contractual risks.
An example of contractual risk could be an instance where the terms of a contract cannot be met by you for whatever reason, even if this is entirely unintentional this would leave you as the contractor liable for the alleged cost to the client of your contract not being met.
In addition to being unable to fulfil a contract, if something were to go wrong during the course of your work for the client (e.g. an accident resulting in you breaking a system, causing downtime), again, this could be expensive for the client and leave you liable for picking up the cost.
A contractual requirement
Often clients understand the risks faced by working with a contractor and how expensive a claim could end up being. Increasingly this means, regardless of the financial risk to you of facing a claim, clients will require you to have adequate insurance in place as a precursor for being eligible for contracts.
You may find that being uninsured means you miss out on being considered for contracts altogether.
What insurance do you need?
Understanding what cover you need can seem complicated, there are many types of business insurance products out there and the cover you require will depend on many factors including the size of your business, the clients you serve and the industry you work in.
Whilst not an exhaustive list, below are the products you’re most likely to want to consider as an IT contractor or software professional.
Professional indemnity (PI) cover
This covers contractors against claims for negligence, unintentional breaches of intellectual property, loss of data or documents, and claims for dishonesty.
In many cases, an end-client will insist that the contractor has a sufficient level of PI cover in place, as a condition of the contract.
Clearly, the risks a contractor faces will depend on their area of expertise (i.e. are they an IT contractor, a Management Consultant, etc).
This type of policy will cover any ’employees’ you may have within your company for any injury sustained at work. Employers are obliged to carry this type of cover by law.
Even if you are the sole ’employee’ of your limited company, you still should take out employers’ liability insurance. The legal minimum level of cover is £5 million, but many insurers provide £10 million as standard.
There are a few very specific instances where your business may be exempt from the legal requirement to have an employers liability insurance policy in place. To find out more read our guide to employers liability insurance.
Public liability cover
This type of cover is also known as ‘general’ liability insurance and will cover your company against third-party claims.
An example of such a claim would be if someone visits your office and falls over a computer cable. It will also cover you if you accidentally damage property at a client site.
Much like cover you would take out for your home contents, business contents insurance covers your stock, equipment and furniture. It will often include some level of portable equipment cover, for things like laptops and mobile phones, which are often with you when you’re on the move.
Cyber insurance
Cyber insurance is all about protecting risks exposed by your data and computer systems. It’s been embraced by larger, more technologically focused businesses, but is fairly underappreciated in general. In reality, it’s a cover to consider for any business that collects, stores, or processes information – and certainly one to think about if you’re a digital-first business, such as an IT contractor.
With cyber risks being some of the most challenging to protect yourself against, cyber insurance is a small price to pay for the expert support at hand should you experience a data breach or cyber-attack.
Benefits of this coverage range from protecting against more malicious activities such as extortion and ransomware to coverage if your business processes payments and you suffer a data breach and media liability and reputation management to protect against the negative reputational outcomes of suffering a data breach.
This type of policy will protect your business in the event of an HMRC compliance investigation. Although HMRC might raise an enquiry into any aspect of your business, such as VAT or Corporation Tax, the main area of concern for limited company contractors is IR35.
The IR35 tax rules are aimed at ‘disguised employment’ – so if you are working via your own company, but in reality, are just an employee in all but name, you may face a large tax bill.
IR35 insurance will cover the costs of professional representation – to defend your company. You may also want to protect your company against any additional tax and penalties you subsequently have to pay.
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