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IT companies and the services they offer are not easy to categorise, largely due to the wide range of business and industrial environments in which IT professionals work.
Since the IT class of business emerged from the traditional miscellaneous book of business, the claims positions of insurers have started to develop in step with growth in the industry and increasing litigation involving IT companies. Despite this, insurers have widened the cover they provide, partly due to commercial pressure but also due to developments in IT law. It is now common to find insurers willing to offer cover on a civil liability basis, which was a level of cover previously reserved for more traditional professions.
Additionally, insurers will now offer cover on an 'any one claim' basis for the limit of indemnity together with first party losses.
What do insurers look for in offering terms?
Essentially, insurers will consider the immediate consequences (financial and otherwise) if data is incorrect or a system becomes unavailable for any period of time. A lot depends on the precise function of the software and the type of commercial application for which it is being used.
Whilst cover for the first two types of claims mentioned above are available in the market, insurers expect that consequential losses will be excluded by insureds in their contract terms and conditions. Insurers will often ask to see a firm's standard terms and conditions, either before offering cover or possibly in the event of a claim.
Beware when signing onerous contracts with customers. It is important for you to understand the extent of your cover in meeting or not meeting these contractual liabilities.
What should you look for in professional indemnity insurance?
This depends on what your business does. Selecting an appropriate policy wording is crucial to obtaining the correct coverage for your business. You will need to outline your exposure to risk and demonstrate the measures taken to manage the risk. The business description in the policy should contain all of the activities in which you are involved. This is not always an easy task due to technical jargon and the fact that many disciplines may be implicit in a general project description, so make it clear (in layman’s terms).
Other insurers persist in the use of the general 'IT consultants' description. Whilst this 'catch all' approach simplifies matters, it may give the impression that the insurance is not tailored to the insured's specific needs.
The IT industry is arguably the most global market, and potential US exposure must be considered. It is possible to arrange US cover but restrictive terms will apply and the price will rise. Make sure you advise your insurer if cover is required for bodily injury or property damage arising out of your negligence. This could be important if your systems are used in mechanical or medical environments. It may also be appropriate to include public/products liability as a package with the PI if this is not provided elsewhere.
Cover may also be limited by the exclusion of specific activities where the insurer looks to protect its position and reduce risk. Always check the main wording and the endorsements attaching to the terms.
The presentation of your business to insurers is very important both in respect of the facts i.e. the things for which cover is required, and the way in which you do your business, both of which influence an insurer's perception of your business and the risk it poses to them.
An insurance history listing all material changes to your business since you first had professional indemnity insurance. For example, mention any previous businesses for which you require cover. It is possible you may be asked for a claims history from the previous business or a copy of its last completed proposal form.
Don't forget to include the names of any businesses with which you have merged, or any that you have acquired, as these will need historic cover. Likewise you may have ceased to offer certain services for which cover is still required.
Keep a written record of all requests for cover to be extended and any historic or material changes to your business. This information can be updated each year and provided as an addendum to the proposal. Any certification the business may have i.e. accreditation by a governing or standards council, is also well worth disclosing.
Keep your presentation neat and tidy. Bear in mind that an untidy presentation may be construed as an untidy business. Allow yourself time to complete the presentation and remember that a hard copy always look better that a faxed one sent in at the last minute.
The Professional Indemnity Insurance market is relatively small so at the point of renewal, concentrate on asking only one or two specialist brokers to quote. Bombarding the market with requests can result in your proposal being locked out of some markets.
Renewal is an ideal time to review your insurance requirements. As your business grows and your contract values increase, it is wise to consider what could go wrong and how much it may cost to settle a claim - and also cover the attendant legal costs. Some policy wordings provide a limit of indemnity with legal costs in addition to the limit. Others provide limits of indemnity which include the legal cost. However, the cost of litigation is high and can eat into the limit of indemnity provided if costs are inclusive.
Many professionals are obliged to carry PI by their professional bodies. Many of these bodies not only have specific requirements in respect of policy wording but also on the limits a professional must carry and the excesses they are allowed. Renewal is an opportune time to check your cover both in respect of your own requirements and those of your professional bodies.
The CSSA is the trade body representing and promoting over 760 UK based companies.
How do insurers rate a risk and what do they look for?
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