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Professional indemnity explained
An agency PI requirement is a contract term asking your limited company to hold professional indemnity insurance before you are placed with a client. It matters because the agency passes liability for your work down the chain to you.
Part of: Professional indemnity insurance
In short
Recruitment agencies ask limited company contractors for PI because the end client usually holds the agency responsible for the services supplied, and the agency passes that risk to your company by contract. £1 million is a common request but not a legal minimum. The Conduct Regulations 2003 let limited company work-seekers opt out of certain provisions under regulation 32, but that does not change your liability or the PI clause. Check that the insured name, limit basis, business description and period match the contract, and that cover will continue as long as the contract requires.
When an agency places you through your own limited company, it usually sits in a chain: your company contracts with the agency, and the agency contracts with the end client. The end client's contract with the agency commonly makes the agency responsible for the quality of the services supplied. The agency then passes that risk down to your company, and asks for evidence that your company has professional indemnity insurance to pay if your work causes the client a loss.
In other words, the PI requirement normally comes from contract terms rather than from statute. The agency wants to know that if the client sues it over your error, there is an insured party further down the chain that it can look to.
A limit of £1 million is a figure agencies often ask for, but some clients ask for more, particularly in financial services, public sector and large technology programmes. The right limit for you depends on what could go wrong, not only on the number in the contract; see how much PI cover an IT consultant needs.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 govern how agencies and employment businesses deal with work-seekers and hirers. Government guidance confirms that the definition of work-seeker includes self-employed people and limited company work-seekers.
Regulation 32 deals with work-seekers that are companies. Under regulation 32(9), certain provisions do not apply if, before the agency introduces or supplies the company to a hirer, the company and the individual doing the work agree to opt out and give notice to the agency, and the agency tells the hirer. The key points of the opt-out are:
| Rule in regulation 32 | What it means in practice |
|---|---|
| Opt-out must be agreed and notified before introduction or supply | It is a decision for you and your company, made before the placement |
| Notice given mid-assignment only takes effect when you leave that position | You cannot switch status partway through a role |
| No opt-out where the work involves vulnerable persons | Care, education and similar roles stay within the regulations |
| Agencies cannot make their services conditional on opting out | An opt-out cannot be a condition of getting work |
| A notice can be withdrawn | The regulations then apply again |
Opting in or out changes the agency's regulatory duties to you. It does not decide whether you need PI, and it does not move liability for your work from your company to the agency. The insurance question is answered by the contract.
Combined contractor policies that bundle PI, public liability and employers' liability are common, and often meet an agency's checklist in one certificate, subject to the limits matching.
If you are paid through an umbrella company, the umbrella is the supplier, so the PI question is usually the umbrella's. Whether its cover actually protects you is a separate matter, covered in does my umbrella company's PI cover me.
For limited company contractors working with public sector or medium and large private sector clients, HMRC guidance says the client decides employment status for tax under the off-payroll rules. That determination affects how you are paid, not whether a client can claim for a mistake. Contractors sometimes assume an "inside IR35" role removes the need for PI; usually it does not, and the agency's contract will often still ask for it. The agency's own exposure here is discussed in IR35 status determination and the recruiter's PI exposure.
These examples are illustrative only.
A project manager trades through a new limited company but still holds a sole trader PI policy from earlier freelance work. The agency rejects the certificate because the insured does not match the contracting company. The policy is re-issued in the company's name before the start date.
A data engineer is offered a bank programme where the contract asks for £5 million each and every claim. The contractor's existing £1 million aggregate policy is increased for the assignment after the broker checks whether the insurer will write the new limit for that type of work.
A contractor negotiates a cap on liability equal to the PI limit. That does not replace insurance, but it aligns the risk with the cover. See liability caps vs PI limits.
Before signing, send the insurance clause to your broker, check the insured name, limit basis and business description, and ask whether the contract requires cover to continue after the assignment. If you trade through a company, limited company vs umbrella and PI for a limited company explain the set-up.
Apex arranges PI and combined contractor cover for limited company contractors; a broker reads every enquiry.
Generally no. For most contractors outside regulated professions, PI is required by contract rather than by law. The agency or end client sets the requirement in its terms. If you do not meet it, the agency may decline to place you or ask you to arrange cover before the start date.
£1 million is a commonly used figure in agency contracts, but it is a contract term, not a legal minimum. Larger clients and higher-risk work often ask for more. Check whether the clause wants cover per claim or in the aggregate, and whether your policy matches.
Not directly. Regulation 32 lets a limited company work-seeker and the individual opt out of certain provisions before being introduced or supplied, except where the work involves vulnerable persons. That changes the agency's regulatory duties, not your liability for your work or your contract's PI clause.
Usually yes, as long as the insured name, limit, business description and period suit each contract. Problems arise when one client asks for a higher limit or a different limit basis. A broker can check each clause against your policy before you sign.
Some contracts require cover for several years after completion. Because PI is claims-made, that means renewing each year or buying run-off if you stop trading. Ask your broker whether the insurer can offer continuing cover on the terms the contract wants.
Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.
Get a PI quote Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
