Professional Indemnity Insurance for Recruiters

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Professional Indemnity Insurance is a form of insurance taken out by most professionals. Once only deemed necessary for those such as doctors or lawyers, now almost every professional who gives advice or provides a service needs Professional Indemnity Insurance. PI Insurance protects the insured professional from any claims that may be made against them by third parties for negligence or breach of duty in the course of providing advice or service. Such cover will normally pay the insured’s legal costs in defending the claim and any damages awarded to the claimant.

Typical liabilities covered by Professional Indemnity Insurance include;

  • Providing erroneous advice
  • Breach of confidentiality
  • Conflict of interest
  • Breach of contract
  • Breach of consumer and fair trading laws
  • Infringement of intellectual property
  • Employee dishonesty
  • Unintentional defamation or libel

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Some policies will also cover the cost of inquiries into the insured’s activities and even public relations expenses to defend the insured’s reputation, but most will not cover liabilities that are recognised under criminal law.

A normal Professional Indemnity policy will cover not only the insured and their business, but also any principals, directors, partners and employees associated with the business.

With more than 40 different products across a wide range of industries, professionals should look for a Professional Indemnity policy that deals specifically with the exposures relating to their particular field.

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Do Recruiters Need Professional Indemnity Insurance?

In any profession where advice is offered or a service is provided, there is always the potential for a dispute to arise between a professional and their client. Recruitment in particular, is a profession where a client trusts the expertise of the recruiter to place the right person in their business first time. Failure to do so can cost the client significant sums of money (anywhere between 100% and 200% of a candidate’s annual salary), so in such cases, they are likely to seek legal recourse to recover their losses.

Recruiters are often required to have Professional Indemnity Insurance by professional associations they belong to, professional standards legislation or by the clients themselves. But even if it is not mandatory, PI Insurance cover is always a wise choice, given the exposures that recruiters face in their line of work. These can include:

  • Failing to do necessary background and qualification checks on a potential candidate
  • Placing an unsuitable or inexperienced candidate in a position
  • Failing to keep a candidate’s CV confidential by allowing a third party to see it without the candidate’s consent
  • Vicarious liability arising out the actions of on-hired employees
  • Loss of documents or data
  • Failing to ensure adequate OH&S procedures are in place at a candidate’s workplace
  • Failing to follow a client’s instructions

Having clients rely on you to completely understand the requirements of a role and then put forward the ‘right’ candidate can be very demanding. Professional Indemnity Insurance provides peace of mind for recruiters, ensuring that if the worst does happen and a client makes a claim against you, you will not be faced with huge legal costs and the potential loss of your assets.

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How to Compare Professional Indemnity Insurance Policies for Recruiters

When comparing Professional Indemnity policies, you need to make sure that the policy covers all the likely exposures you might face as a recruiter. Key covers to look for include:

  • Cover for all activities you undertake, including induction and training
  • Cover for permanent and on-hired employees and contractors (both white-collar and blue-collar)
  • Cover for every occupation and industry you recruit for

The main thing that differentiates Professional Indemnity Insurance policies is the exclusions they contain. Some policies exclude legal liability for the actions of permanent or on-hired employees and contractors, while others exclude particular occupations. For this reason, you need to look at the exclusions carefully to determine whether a policy really gives you the cover you need in your particular circumstances.

As well as covering you for the main exposures you may face, your Professional Indemnity Insurance policy should also include extensions that cover you for additional things such as:

    • Unintentional defamation, slander or libel
    • Infringement of intellectual property rights
    • Breach of confidentiality
    • Official investigations and inquiries

Breaches of consumer protection laws

  • Costs associated with court attendance
  • Public relations expenses

As with any form of insurance, if you are unsure of anything a policy contains, you should always seek professional advice before committing to anything in writing. Your colleagues or your industry association can be a good source of advice when choosing Professional Indemnity Insurance.

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Public Liability Cover for Recruiters?

While it is clear that Professional Indemnity Insurance is a must-have for recruiters, you may ask why public liability insurance is also a necessity?

The answer is that every business that generates revenue needs public liability insurance. Whether you’re a recruitment consultant or the owner of the local fish and chip shop, if you deal with the general public, you need protection from anything that might happen to them while you are providing them with a service.

Public liability insurance covers you against claims of personal injury or property damage incurred by third parties, either on your premises or when you are visiting their premises in the course of normal business activities. It normally covers your business, any subsidiary companies you own and your employees, provided they are performing their normal duties at the time.

It does not cover any events arising out of deliberate injury or damage or criminal acts on your part and will only cover claims made by external parties, not those made by your own staff (for which you will need employer’s liability insurance). Nevertheless, it is a relatively cheap form of insurance and essential to have, as public liability claims can run into the millions of dollars.

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Frequently asked questions about Professional Indemnity Insurance

Q: Who is a professional?

  • A: A professional is anyone who provides advice or a service to other people in a professional capacity.

Q: What protection does PI Insurance offer?

  • A: Professional Indemnity Insurance protects your assets in the event of a claim being brought against you.

Q: What does the term ‘negligence’ mean?

  • A: Negligence is where a person suffers a loss that is caused by a professional’s failure to fulfil their duty of care towards that person.

Q: What is the retroactive date?

  • A: The retroactive date is the date from which your Professional Indemnity Insurance policy covers you.

Q: When should I notify my insurer of a situation that might lead to a claim?

  • A: The moment you become aware of it. If you fail to do so, your cover may be denied.

Q: I am a skilled recruiter. Why should I have Professional Indemnity Insurance?

  • A: Because even if you are the world’s best recruiter, you may still be sued. Even when you are not at fault, you will still need to pay the costs of defending yourself in court.

Q: How much Professional Indemnity Insurance cover do I need?

  • A: This will depend on the size of your business and is often stipulated by your industry association or your clients.

Q: What is the difference between a costs-inclusive excess and a costs-exclusive excess?

  • A: A costs-inclusive excess is paid towards your legal costs, while a costs-exclusive excess goes towards the settlement of the claim.

Q: How do I apply for PI Insurance?

  • A: Nowadays, the application process is fairly simple. Usually, you can apply online, provide the required information over the phone and be covered within 24 hours.
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Find Professional Indemnity Cover for Recruiters

Hopefully this guide has shown that recruiters, like most other professionals, are exposed to a range of risks in the course of doing business and need Professional Indemnity Insurance to protect themselves and their businesses. After all, everyone is human, no matter how professional, and mistakes can and do happen that can have very costly consequences if there is no insurance cover.

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William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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