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Professional Indemnity Insurance for IT Contractors

Written by

Shaun McGowan

As an IT contractor you are offering and selling your skills and expertise. This gives your clients the right to expect a professional service that fulfils all their requirements. If something goes wrong that costs your client money, and they BELIEVE you are responsible, they can take legal action against you to recover their losses. They may claim that you:

  • Made mistakes or omissions in your work
  • Did not perform your work to the required standard
  • Did not provide the services you were hired for
  • Lost, corrupted or failed to protect the privacy of their data

Even if your work involves following a brief from your client, is supervised by your client, or will undergo a testing process after your part of the project is completed, you are still at risk of a negligence claim.

Why do IT contractors need professional indemnity insurance?

There are several reasons why professional indemnity insurance (PII) is essential for you if you’re conducting business as an IT contractor.

  • Many clients won’t work with you unless you have adequate insurance to protect their business if you make an error that costs them money.
  • If a client lodges a negligence claim against you, with or without good reason, you will have to finance your legal defence – which could cost you tens or even hundreds of thousands.
  • Your personal assets are at stake, as well as your business assets and your reputation.

What does professional indemnity insurance cover?

Professional indemnity insurance covers a different set of risks to your public liability insurance (which relates to any physical damage you may inadvertently cause to a person or property). PII protects you if one of your clients suffers a financial loss as a result of advice you give, or a service you’ve provided.

Your PII policy provides cover for the legal costs of defending your business against a negligence claim– whether or not that claim is found to be true – and for any damages that are awarded against you, or the costs of putting right your mistake.

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How much is professional indemnity insurance for IT contractors?

The cost of your professional indemnity insurance policy will depend on a number of factors, the most significant of which are:

  • The type of work you do (and hence the nature and likelihood of the risks)
  • Where you work (different states have different stamp duty rates)
  • Your turnover
  • The amount of cover you wish to take out

Additional features such as retroactive protection or runoff cover can also increase the cost of your premiums.

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Professional indemnity insurance case study

A network security specialist was contracted to review and overhaul an accounting company’s firewall, intrusion protection and anti-virus arrangements. A short while later the firm’s network was hacked and the personal information of more than 40 clients was stolen.

The company sued the contractor to recover their losses, which included:

  • The $2,000 cost of responding to an investigation by the Office of the Australian Information Commissioner
  • The $379,000 they were required to pay in compensation to their clients for failure to protect their data in compliance with the Privacy Act
  • $75,000 for loss of business due to the damage to their reputation

Without private indemnity insurance the contractor would have faced damages of close to half a million dollars. Instead they were only required to pay their claim excess of $[xxx].

List of IT services that need professional indemnity insurance

Although some areas of the sector may carry greater risks than others, any IT professional offering consulting services needs to ensure they are adequately protected by PII, including people working in the following areas:

Analytics Services

  • Business Analysis
  • Enterprise Resource Planning Administration
  • IT Systems Audit, Analysis and Testing
  • Quantitative Analysis

Database Services

  • Database Administration
  • Database Programming

Data Management Services

  • Data Handling
  • Data Analysis
  • Data Communication
  • Data Extraction or Mining
  • Data Processing or Warehousing
  • Data Visualization
  • Data Storage

Hardware Services

  • Hardware Development and Sales
  • Hardware Engineering

Hardware Installation

  • Hardware Maintenance and Repair

Network Services

  • Network Consulting and Development
  • Network Infrastructure Design and Construction
  • Network and System Administration
  • Information / Systems Security

Software Design and Development Services

  • CRM Software Design
  • Desktop Software Development
  • E-Commerce Application Development
  • Game Development
  • Mobile Application Development
  • Software Development/Programming

Support Services

  • Helpdesk and Network Support
  • IT Education and Training
  • IT Facilities Management or Outsourcing
  • IT Project Management
  • IT Recruitment and Placement Services
  • Software Maintenance
  • System Administration
  • Systems Integration

Web Services

  • ISP / Web Hosting / Internet Services
  • Search Engine Optimisation
  • Website Design and Development

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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