Recruitment Agencies: Why Traditional Business Insurance Won’t Do the Job
Published On : 11 Feb 2025
From achieving the ideal candidate-client match to dealing with multiple parties in the contract chain, every day brings numerous challenges and risks for a recruitment agency. In such a fast-paced environment, errors and oversights can happen, and occasionally, issues lead to financial and/or reputational losses.
Insurance brokers have a responsibility towards their recruitment clients to educate them on the possible risks and provide adequate insurance cover. While traditional business insurance policies provide a level of coverage, they can fail to address some specific liabilities recruitment companies face, potentially leaving gaps in cover.
What are the key risks for recruiters?
Candidate misplacement: Whether it's a temporary worker or a permanent hire, placing the wrong candidate or failing to carry out appropriate levels of screening can result in financial loss for both the employer and the agency. This could be due to issues around the worker’s ability, or their actions or behaviour, such as dishonesty or employee fraud.
Contract disputes and vicarious liability: Because recruitment agencies often act as intermediaries between candidates and employers, the agency can be held responsible for the actions or errors of the candidates they place. There is often ambiguity around this, especially when a contractual chain includes intermediaries, for example, a payroll company, an umbrella company or the worker’s personal service company. Vicarious liability applies to both professional indemnity insurance and public liability insurance.
Negligence or errors: If a recruitment agency provides incorrect information to candidates or employers, it can lead to issues that may be difficult and/or costly to resolve. For example, a recruiter may fail to properly check a candidate’s right to work or their employers’ references, or they could misinform a candidate about the exact expectations of a hybrid role.
Data protection: Recruitment agencies handle vast amounts of sensitive personal data, including CVs, contact information and background checks. A data breach or cyber-attack can have severe consequences, including fines, reputational damage and financial loss. While a basic business insurance policy may protect the organisation against such losses, it may not provide enough cover for a significant cyber event and recovery costs.
Specialist recruitment underwriting from Pen
Pen Underwriting has a dedicated recruitment insurance team, and our specialist underwriters can help brokers understand the sector’s nuanced risks and insurance requirements. Our appetite encompasses all types of recruitment agencies, from nationwide chains to small independent agencies, enabling us to quote on almost 90% of the risks we evaluate*.
Some of the key covers we can underwrite include:
• Contingent liability cover: Employers’ liability and public liability cover for the placement should the employer’s insurance cover fail.
• Cover for dishonesty of placed personnel: Included in the policy’s professional indemnity cover.
• Primary liability cover: Employers’ liability and public liability cover for contracts where a recruiter may accept legal liability for the placements whilst and/or where the recruiter is offering managed services.
• Contract disputes and temporary worker and contractor disputes: Covered within the legal expenses section of the policy.
• Directors’ and officers’ cover: This includes employment practices liability and corporate liability.
• Errors and omissions: Included in the policy’s professional indemnity cover and can be extended to cover the wrongful act of a placement where there is vicarious liability exposure.
• Cyber: Breach costs, costs for damage to data or programs, multimedia liability and more.
“Recruitment is a people business and by its nature presents risks relating to client and candidate expectation, contract disputes and ambiguity around responsibility. Because these risks are not always clear-cut, they require specialist underwriting to ensure there are no gaps in a company’s insurance programme. This is where our team’s expertise can add tangible value and provide comprehensive protection.”
Nick Kernaghan-Andrews, Head of Recruitment, Pen Underwriting
Policy limits and exclusions may apply. Please see the policy documentation for full details.
*New Business data collected between January 2024 – August 2024.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Pen Underwriting Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
