What recruiters need to know about Professional Indemnity insurance

As a recruiter, it’s essential to invest in the right recruitment insurance cover to help protect you from unforeseen professional errors or omissions, which could result in a financial loss for your company. Professional Indemnity Insurance (PII) is designed to cover you for the risk of professional negligence or errors, which can also include those made by the workers you supply.

Failing to invest in the right cover can prove costly. But with so many policies out there, it’s important to understand exactly what is and is not included in your recruitment PII cover.

Here are some common differences and pitfalls found in PII policies.

‘Any one claim’ or ‘Aggregate limit’?

These are terms referring to the amount of money your insurer will pay out either per claim or over the term of your policy. If your policy offers pay-outs on a ‘claim-by-claim’ or ‘any one claim’ basis, the indemnity limit is the maximum amount you will be able to receive per claim. However, an ‘aggregate limit’ means the limit of indemnity is the total amount your insurer will pay over the policy term (usually one year).

Our advice: When relying on outsourced workers, it’s a good idea to look for an ‘any one claim’ policy, allowing you to make as many claims as you need without exhausting your indemnity limit.

‘Costs inclusive’ or ‘Cost in addition’?

A ‘costs inclusive’ excess means your policy excess applies to costs and expenses incurred by defending, investigating or settling your claim. If your policy is a ‘cost in addition’ policy, your insurer is committing to paying all legal fees without taking it out of your indemnity cover. 

Our advice: ‘Cost in addition’ policies are generally the best option. The cost of defending a claim can get expensive, especially if it goes to court, quickly depleting your indemnity limit.

Insured’s contribution?

Most PII policies will contain an excess known as an Insured’s contribution. This outlines the costs you will be expected to cover in the event of a claim. The key thing to look out for here is whether your Insured’s contribution ‘applies to defence costs’ or ‘does not apply to defence’. Having an applied to defence policy could leave you liable for all legal costs in defending allegations made against you.

Our advice: Always opt for a policy where the excess or Insured’s contribution does not apply to defence costs.

How long is your claims notification period? 

Look out for the clause in your insurance policy stating the notification period of your claims. This is the time frame in which you must report an incident in order for your insurance to be valid. Failing to claim within the notification period could lead to your insurer refusing to provide cover.

Our advice: Make sure you find a policy that offers a reasonable notification period to save you being caught out by strict time frames.

What about retroactive cover? 

PII is underwritten on a ‘claims made’ basis. This means you must hold a valid insurance policy at the time when a claim or complaint is made, not just when the incident occurred.

Retroactive cover is where insurers apply a retroactive date to your policy, stating how far back in time an event can be claimed for under your current insurance.

For example, if your business started trading in January 2018, but you did not invest in PII until January 2019, your insurer would most likely apply a retroactive date of the 1st January 2019. This means that if you make a claim in March 2019 for an event that occurred prior 1st January 2019, you will not be covered by your insurance policy.

Our advice: As a continuing trader, it is beneficial to have unlimited retroactive cover. However, it’s key to note that this will only apply if you have had a full and valid PII policy in force at all times of trading.

If you are still concerned or confused about the wording of your insurance policy, it’s a good idea to get advice from a professional. Contact your local Marsh Commercial advisor today, for help understanding the inclusions and exclusions of your insurance policy.