The Cost of Having Professional Indemnity Insurance Vs Not Having Coverage

What kind of IT services are you providing? Are you a website developer, an IT&T project manager, software developer, or a provide IT&T support services? Or perhaps you are IT&T Consultant or Contractor? It doesn’t matter what profession you are, there is an expectation that you will provide accurate advice. There are always mistakes and accidents in business. Sometimes, even the most meticulous of employees can do something to upset a client. If that happens, that client may sue to recover their financial losses.

George’s Story

George is an IT Software Developer and has been in the business for a few years. He is a sole trader and has no employees. He has never experienced a client becoming too upset with his business. He has a high level of client satisfaction.

A high-profile client awarded him a contract that he had been trying to win for nearly a year. The project required a major upgrade to ERP and the addition of new product lines. He was delighted. Although it meant that his work load would increase dramatically and that he would have to work longer hours than usual, it was short-term. The rewards at the end would be well worth it due to the prestige of having the client in his portfolio and the potential work that might be developed.

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He received a call from his mother stating that her mother was in serious condition after a car accident the week before he was awarded the contract. George spent the following weeks at his mother’s side, working nights to maintain his work. He spoke to his clients about the situation and they were more than willing to give him extra time. George did not inform his clients about his situation because he wanted to impress the client and not risk losing their work. Exhausted and stressed, George continued to work on the project for his client. He also confirmed that the project was complete. After weeks of touch and forget, George’s mother was finally in stable condition. George feels relief and things seem to be returning to normal.

He receives a call about a problem from his new client after a few weeks. The new products appear to have major inconsistencies. A review of the systems shows that the system miscalculates the cost of products. This has resulted in a $40,000. They suspended product sales until they fix the problem. They will also suffer a substantial financial loss because they have already announced the launch date for their new product. Cancellation of that date would result in additional costs. George is informed by the client that they will file a claim against him for any additional costs. George assures the client that, if he was responsible for this error he has professional indemnity coverage that provides protection in the case he is negligent.

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After receiving the client’s call, George calls his insurance broker. George was fortunate to have professional indemnity insurance which covered professional breach. This includes coverage for acts, errors, and omissions. After all was said and done, the client received $60,000 including legal defense costs. George did not have to pay any of the excess. After an investigation, the insurance company responded to the client’s claim. George was able to continue his life without worrying about how he would pay the money or managing a claim from his clients. George made an error but the client was pleased to be compensated.

George’s situation is an example. We all make mistakes, regardless of whether we are under pressure to perform at work or in our personal lives.

Professional indemnity insurance is expensive

Professional indemnity insurance is expensive. A client can sue a person for damages that go beyond the amount of the work performed or the contract value. If a client or business suffers financial loss, it doesn’t take long before the relationship with that client and business is strained. In most cases, the next step is to seek legal advice from a solicitor or lawyer. They will then be appointed to investigate all avenues to attempt to recover the loss against all parties and begin litigation. Anyone can sue for any amount of money if their client has suffered a financial loss. They may also be legally required to compensate if the loss was due to their negligence. If the client doesn’t have professional indemnity or is not well-funded to cover a financial loss, they will likely need to sell their home or business to raise the money. The worst case scenario is losing everything and declaring bankruptcy. This can lead to bankruptcy and ruin credit.

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It is impossible to know when anything might happen. It doesn’t take negligence for someone to file a claim against your business. However, you may have to defend the allegation. If one lawsuit could potentially ruin your life for the rest of your life, it’s not worth taking that chance. Too many people have gone into business without professional indemnity insurance in the past and still pay for it years later. They probably wouldn’t have had to pay the premiums if they had the coverage. It is worth the annual investment.