Professional indemnity insurance is not a legal requirement for HR consultants, but it can offer valuable protection. Dawn Nolan looks at how to choose a provider and what you need to consider.
If you work as an HR consultant, it may seem as though what you do is fairly innocuous – you offer your advice and experience on dealing with employee or company issues.
But, in fact, offering your “knowledge, skills or advice as part of your profession – either as a self-employed individual or for a company” could mean a compensation claim could be brought against you, even if you offered advice for free, according to the Association of British Insurers.
“Professional indemnity insurance is vital for HR consultants,” confirms insurance expert Nick Breton, head of Direct Line for Business: “If a client believed the consultant’s advice had been negligent and led to a financial loss or hurt their reputation, or if they had taken advice which resulted in someone being unjustly dismissed, then they could claim for compensation. Professional indemnity insurance is designed to deal with the cost of this risk.”
How does professional indemnity insurance protect your business?
Professional indemnity insures professionals and businesses against claims made by clients for financial loss or reputational damage due to negligent advice, design or services. The policy covers your legal costs for defending the claim as well as any compensation paid out. It also insures you for:
- Breach of professional duty – when you or your business has a duty of care to a client, but fails to live up to that standard, such as incorrect advice or making a mistake in your work.
- Dishonest, fraudulent or malicious act or omission of any former or present employee – this includes employees stealing from your clients, and lying or failing to inform you or your clients of detrimental information, as well as revealing confidential client information.
- Libel or slander – using or producing written, or spoken statements or materials that damage a client’s reputation.
- Unintentional breach of confidentiality – when data or information provided in confidence is accidentally disclosed to a third party without the client’s consent, such as sensitive data being stolen.
- Unintentional infringement of intellectual property rights – such as accidentally violating copyrights, patents, and trademarks (includes imitation or passing another’s products/services off as your own).
- Loss of or damage to documents – damaged, lost in the post or stolen while in your care.
So, while it’s not mandatory, taking out a policy could provide valuable peace of mind.
In fact, by way of caution, the CIPD says “this type of insurance is still a condition of many client contracts and perhaps they should take it out in any case for their own protection if they are running a professional, independent consultancy”.
Breton warns of companies implementing new HR procedures on the back of advice, which may be contrary to legislation.
“Even sending an email containing confidential information to the wrong recipient — the slip of a mouse — could result in a civil case,” he explains. Again, HR consultants would be covered by professional indemnity insurance for the cost of legal action and any resultant damages.
“A claim for negligent or incorrect advice can be devastating for a small business, not to mention the costs of an HR advisor defending themselves in court. Defence costs can mount up quickly plus you need to consider compensation costs which can go in to thousands.”
Buying a policy
So, if you’re an HR consultant just starting out, how do you decide on a provider?
You can buy professional indemnity insurance directly from an insurer or from a specialist broker through the British Insurance Brokers’ Association (BIBA). Many insurer websites allow you to get instant online quotes, but you might find it easier to call the individual insurer’s helplines to get more answers.
As with more familiar types of insurance, online comparison sites such as comparethemarket.com can help you compare policies and prices and find a better deal if you wish to change provider.
Doing your research is important, but it can be time-consuming. CIPD member Steven Jackson describes the many hours he spent comparing quotes online as “soul destroying” before stumbling across the CIPD’s recommended professional indemnity scheme.
Since partnering with Weald Insurance Brokers last October, the CIPD says its members who are self-employed HR consultants or who work in a small business can benefit from a discounted professional indemnity insurance scheme with “enhanced worldwide protection”. Underwritten by HCC Insurance, it boasts “competitive insurance premiums” and “wider protection” as a member perk.
The price of your premium will vary widely among insurers, taking into account the number of years’ trading, and fee income, for example. Cover for smaller, simpler firms can be bought for an annual fee of less than £100 while some insurers give big discounts for new firms.
Level of professional indemnity cover
So how much cover do you actually need? Generally, a professional indemnity policy will provide between £100,000 and £5 million in cover. You can even ask your clients how much they expect you to have. “In fact, some clients will state the value of the cover they look for as a condition of business, which will give you some guidance,” Breton explains.
“In terms of making sure you have enough cover, it makes sense to consider the biggest possible monetary damage any error in your advice can make to any customer, or the total contract value at stake on any project or assignment if it were to go wrong,” he advises.
Professional indemnity insurance for HR consultants is much the same as the cover for business consultants and provides for defence costs, such as lawyers and court costs. “The policy will also cover any irrecoverable fees where it makes commercial sense to waive any outstanding invoices due to the negligent advice. HR consultants will also receive data protection cover which will help defend a criminal prosecution under the Data Protection Act,” adds Breton.
Key considerations
What are the principal questions you should ask about your cover?
- Check the period of time for which you’re covered. You can choose a policy that covers you for actions taken during the policy and where the claim is also made during the cover. But you can also get “retro-active” cover for your past liabilities (as long as you had professional indemnity insurance in place).
- Be careful about what is included in the policy. Some provide elements of cyber cover, others don’t. Cyber extensions to professional indemnity can cover the HR consultant’s website against hackers, fraudulent use of electronic signatures, or from negligently spreading a computer virus.
- Will it cover all legal costs as part of its claims settlement?
- Always check the level of excess that is to be paid towards a claim.
What’s not included?
Deliberate acts of negligence by the insured would be excluded from cover. In terms of other cover, consultants should consider public liability insurance for added protection.
“For example, if a client visits the consultant’s business and while there they have an accident, they could be responsible for the damages,” explains Breton. “If a client or even a member of staff tripped on a carpet and hurt themselves resulting in ongoing physiotherapy, then the consultant could be responsible for the compensation to pay for the injury,” he warns.
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It goes without saying that you should read and understand your policy documents as professional indemnity products may be called the same thing but may not provide the same cover. Insurers will use different wordings (ask the experts to clarify any jargon and terms you don’t understand) and varying approaches to paying claims.
Armed with this knowledge, you can rest assured that you will be able to claim on your policy, should the worst happen.
