Annual insurance review for your recruitment agency: a 5-point checklist
A yearly insurance review gives your recruitment agency...
For recruitment agencies, few worries are greater than a client saying, “The person you placed was the wrong fit – and we’ve suffered as a result.” Whether a candidate misleads on their CV, underperforms, or simply turns out to be unsuitable, the risk of legal action or lost trust is real.
Does recruitment insurance - and especially professional indemnity cover - actually protect your agency if things go wrong? Here’s what UK agencies need to know, from insurance response to claim scenarios and best practice for risk management.
What happens if the candidate lies or underperforms?
Even with strong vetting, no recruiter can guarantee that every placement will work out perfectly. Candidates may misrepresent qualifications, hide disciplinary issues, or underperform once in role. When this happens, your agency could face claims for financial loss, especially if the client believes the vetting was lacking or the placement was “mis-sold”.
Main legal risks for recruitment agencies
- Negligence or breach of duty (such as not checking references or misrepresenting a candidate’s suitability)
- Vicarious liability, where the agency is held responsible for actions taken by temps or contractors on assignment
- Breach of confidentiality or privacy
- Employee dishonesty, if the agency is judged to have missed red flags during screening
A real-world example: a recruitment agency was sued by a law firm after a placed solicitor was found to have a prior conviction and misappropriated funds. The law firm alleged that the agency failed to conduct proper checks. The agency’s professional indemnity insurance covered their defence, with the outcome depending on whether due diligence and documentation were in order.
Will professional indemnity or another policy respond?
Professional indemnity insurance (PII) is the main policy that responds if a client claims financial loss due to a “bad hire”. In the UK, specialist recruitment insurance typically includes PI cover, designed to pay for legal defence and any damages awarded if you are found liable for mistakes, negligent advice, or errors in vetting. This can include:
- Failing to verify a candidate’s credentials or references
- Providing misleading advice about a candidate’s suitability
- Recommending a placement without disclosing material information
Other relevant insurance types
- Public liability insurance: Covers third-party injury or property damage (rare in “bad hire” claims)
- Legal expenses insurance: Can help pay the costs of defending contract disputes or tribunal claims
- Employers’ liability insurance: Protects against claims from your own staff or temps (not client losses)
While PII is not a statutory legal requirement, it is considered essential industry practice. Most clients, especially in regulated sectors or public sector frameworks, require proof of PI insurance before awarding contracts.
Common exclusions to be aware of
- Deliberate dishonesty or fraud by the agency or its staff
- Claims arising from known issues before the policy began
- Losses due to criminal activity by candidates (if the agency had no reasonable way to uncover it, the policy may still respond)
- Claims outside the “claims-made” policy period
PII does not cover everything – it will not protect your agency if you knowingly misrepresent a candidate, or fail to notify the insurer promptly about a potential claim.
Real claim examples from UK recruitment
Professional indemnity insurance for recruitment agencies is not theoretical – claims are a reality in the sector. Examples include:
- An agency placed a senior engineer who had exaggerated qualifications. When the client suffered losses, they sued for negligent vetting. The PI insurer covered the agency’s legal costs and settlement.
- A contractor placed by an IT recruiter deleted business-critical data at a client. The client held the agency responsible, arguing the contractor was under the agency’s supervision. The PI policy with a vicarious liability extension paid for both the legal response and the client’s loss.
- Agencies have faced claims for breach of confidentiality, such as sending sensitive candidate data to the wrong recipient. PI insurance can respond to data protection breaches, covering legal costs and regulatory fines where insurable.
Clear documentation and prompt insurer notification are critical for insurance to respond effectively.
How to reduce this risk: contracts, compliance, and insurance
Insurance provides a crucial safety net, but robust risk management remains the best defence for recruitment agencies. Here’s what leading UK recruiters do:
- Maintain clear, up-to-date contracts with clients, explicitly setting out your responsibilities, vetting performed, and any liability limitations
- Document every stage of the candidate screening and client communications process, including reference checks, qualification verification, and advice provided
- Notify your insurer immediately of any incident that could lead to a claim – even if unsure it will escalate
- Review your insurance cover annually, or whenever your business changes (e.g., increased turnover or sector expansion), to avoid underinsurance
- Train your team on compliance and ethical standards to ensure best practice is followed at all times
- Choose a specialist policy designed for recruiters, with extensions like vicarious liability and drivers’ negligence if relevant
Kingsbridge Recruitment Insurance - as an insurance broker is regulated by the Financial Conduct Authority. As a client you can expect clarity, fairness and transparency in all insurance information and communications, as well as clear explanations of benefits, exclusions and limitations - helping you to make well informed choices for your agency.
What does Kingsbridge Recruitment Insurance offer?
Kingsbridge Recruitment Insurance provides specialist packages for recruitment agencies of all sizes, including permanent, temporary, and contract staff placements. Cover typically includes:
- Professional indemnity insurance (with optional vicarious liability cover)
- Public liability and employers’ liability insurance (meeting UK legal requirements)
- Legal expenses insurance
- Cyber liability cover for data breaches and cyberattacks
- Drivers’ negligence cover (if relevant)
To learn more about all the protections and options, visit the Recruitment Agency Insurance page.
You may also find these guides useful:
- What is recruitment agency insurance?
- Why professional indemnity insurance is essential for recruitment agencies
- What clients expect from your insurance as a recruitment agency
Recruitment insurance, especially professional indemnity cover, is designed to protect your agency when a placement goes wrong - provided you can show you acted reasonably, followed best practice, and maintained proper documentation.
While insurance is a critical backstop, it is not a substitute for diligent recruitment processes and clear, honest communication with clients. By combining robust contracts, rigorous vetting, and comprehensive insurance, your agency can operate with confidence, satisfy clients’ expectations, and avoid the serious fallout from an unfortunate hire.
If you would like tailored advice or a review of your agency’s insurance needs, Kingsbridge Recruitment Insurance’s experts are on hand to help. Call us: 03301249559.
